Home Depot, Inc. (The)

Greetings, and welcome to the Home Depot Second Quarter 2026 Earnings Conference Class. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Isabel Janci. Please go ahead.

Thank you, Christine, and good morning, everyone. Welcome to Loan Depot's second quarter 2026 earnings call. Joining us on our call today are Richard McPhail, Executive Vice President and Chief Financial Officer, Ann-Marie Campbell, Senior Executive Vice President, and Billy Bastek, Executive Vice President of Merchandising. Following our prepared remarks, the call will be open for questions. Questions will be limited to analysts and investors. As a reminder, please limit yourself to one question with one follow-up. If we are unable to get to your question during the call, please call our Investor Relations Department at 770-384-2387. Before I turn the call over to Richard, let me remind you that today's press release and presentations made by our executives include forward-looking statements Under the Federal Securities Law, including as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include but are not limited to the factors identified in the release and in our most recent Annual Report Form 10-K, and other filings with the Securities and Exchange Commission. Today's presentation will also include certain non-GAAP measures, including but not limited to adjusted operating margin, adjusted diluted earnings per share and return on invested capital. For reconciliation of these and other non-GAAP measures to our corresponding GAAP measures, please refer to our earnings press release on our website. Now, let me turn the call over to Richard.

Thank you Isabel and good morning everyone. Before turning to our results, we want to touch on Ted's temporary medical leave of absence, which we announced last week. We wish Ted a quick recovery and appreciate the support that has been shown by so many Home Depot partners. We look forward to Ted's return in a few months and we will share any material developments as appropriate. Ann and I are supported by an exceptional leadership team and a dedicated board, and together we are wholly focused on executing our strategy and winning in our market. Turning to the quarter, sales for the second quarter were $47.9 billion, an increase of 5.7% from the same period last year. Comp sales increased 1.7% from the same period last year, and Thompson, U.S. increased 1.3%. Adjusted diluted earnings per share were $4.92 in the second quarter compared to $4.68 in the second quarter last year. Our second quarter results exceeded our expectations and our teams did a great job executing throughout a dynamic environment. Our customers continue to engage in home improvement projects, and throughout the quarter, we saw broad-based demand across the business. In the U.S., our northern and western divisions posted positive comps, and Mexico and Canada posted positive comps. While consumer uncertainty and housing affordability continue to pressure demand for larger home improvement projects, we remain focused on what we can control. Our strategy of driving our core and culture, delivering a frictionless interconnected experience, and winning the pro. With that, I'll turn it over to Ann.

Thank you, Richard, and good morning, everyone. Driving our core and culture is at the heart of what we do every day to deliver the best experience for our customers. To do this, we continue to invest in what's your experience. Our teams are focused on ensuring on-shelf availability remains at record levels, on introducing new and innovative products, and deploying technology across the stores to enhance the customer experience. This, coupled with all of our investments in our associate experience through technology-enabled tools, makes it easier than ever for associates to serve customers. and we have seen greater associate engagement, better customer satisfaction scores, and stronger sales. A great example of how we're building on the momentum that we're seeing is through the evolution of Magic Apron. In addition to a website, now associates and customers can utilize this application in arouse to navigate our stores more efficiently Find products within seconds and ask questions about products and projects to feel more confident in their ability to complete a home improvement project. Customer feedback has been incredibly positive. In terms of our interconnected experience, we're making progress on a multitude of initiatives, including delivery. We know speed of delivery is important to our customers, and today, for in-stock parts of products, over 65% of our deliveries are same day or next day. And we're continuing to get faster. In fact, this month we launched express delivery nationwide with delivery on tens of thousands of products in three hours or less. In addition, We've evolved our appliance delivery model to better serve direct purchases. We now stock a select assortment of appliances that can reach our customers next day in certain markets. We are seeing a sales lift in these markets and will continue to lean in to broaden these efforts. And we are winning with the pros. Pro-positive comps in the quarter and we saw strong performance across all our pro cohorts. This is being driven by the many investments we have made across our systems, capabilities for pros, product assortment, job block quantities, delivery, sales teams, and specialized services. There is more to do, but it is evident that we are serving our pros better than ever and this partnership with our customers creates a sticky and lasting relationship. In closing, I'd like to thank all of our associates for their hard work this quarter. I'm pleased to announce that based on our first half results, 100% of our stores qualify for success sharing or profit sharing program for hourly associates. These results were a testament to our investment across the business and our associates' focus on customer service. With that, I'll turn it over to Billy.

Thank you, Ann. Good morning, everyone. I want to start by also thanking all of our associates, supplier, and supply chain partners for their ongoing commitment to serving our customers and communities. As you heard from Richard, our performance during the second quarter exceeded our expectations as customers continued to engage In the second quarter, we saw broader engagement with 13 of our 16 merchandising departments posting positive comps, including storage, electrical, hardware, power, plumbing, indoor garden, kitchen, paint, bath, outdoor garden, building materials, flooring, and millwork. During the second quarter, our comp average ticket increased 2.8% and comp transactions decreased 1%. Big ticket comp transactions for those over $1,000 were positive 2.4% compared to the second quarter of last year. We were pleased with the performance we saw in Portable Power and Patio. However, larger discretionary projects remain under pressure. During the second quarter, Pro posted positive comps and outperformed DIY. We saw strength in DIY across many spring-related categories, including live goods, mulch, soils, hardscapes, storage, patio, and grills. And for pro, we saw strength across many pro-heavy categories like portable power, decking, dimensional lumber, pipe and fittings, fastener, hand tools, and concrete. Turning to total company online comp sales, Sales leveraging our digital platforms increased 11% compared to the second quarter of last year. This is the fifth quarter in a row with double-digit year-over-year growth driven by our ongoing investments across our interconnected platforms. Delivering the best interconnected experience is a key component of our strategy, and our faster delivery speeds are resonating with customers and driving greater engagement. As Ann mentioned, we have made meaningful progress with our delivery speeds. This progress extends beyond parcel products. For big and bulky products, we've also increased speed of delivery significantly. To put this in perspective, over the last 18 months, we've reduced our delivery lead times approximately 45% in the U.S., which is leading to greater conversion with our customers. And now, approximately 55% of our big and bulky deliveries on products we stock are delivered within two days. Going forward, we will continue to further optimize fulfillment across all of our assets to better serve our customers and enhance the interconnected shopping experience. During the second quarter, we leaned into products and projects that are resonating with our customers. We focused on innovation, expanded assortments, and reduced friction points. all to deliver a compelling value proposition. For example, we continue to see tremendous success in power. In fact, Q2 was a record-setting sales quarter for portable power tools. As we've mentioned before, we have built a strong competitive advantage with our extensive lineup of battery-powered platforms that allows us to continue to grow share in these categories. Another category where we continue to see strong performance As we lean into our branded systems and expanded assortments. Milwaukee Packout, our largest national loyalty brand for pros, has the industry's most versatile and durable modular storage system with solutions for toolboxes, organizers, racks, and many more. These modular units provide our pros with easy access to all their tools at their job site and at their homes. And in appliances, we recognize that in the current environment, there is a growing shift towards direct purchases, which is why we have been making advancements in our supply chain capabilities to more easily and quickly get product to the customer. As a result of our investments, we are now able to provide next-day delivery coverage on key SKUs to nearly 60% of the population. We are encouraged with the positive performance we are seeing in these markets and will continue to expand population coverage In addition, we are expanding our relationship with USG across our business. The Home Depot will be the exclusive launch partner for USG's newest innovation, ultralight tufts, chips, and panels in the big box retail channel. Further solidifying our leadership as the go-to retailer for pro-preferred building materials, this product stands out as the lightest and most durable half-inch panel in the market. We're also accelerating growth with another key pro-exclusive, Gruco Joint Treatments. Gruco has driven strong pro-loyalty with us for decades, and we are excited to expand their product lineup across our stores. As we look ahead to the third quarter, our merchandising organization remains focused on being our customers' advocate for value. This means continuing to provide a broad assortment of best-in-class products that are in stock and available for our customers when they need it. With that, I'd like to turn the call back over to Richard. Thanks, Billy.

I'll now spend a few minutes on our financial update for the quarter. In the second quarter, total sales were $47.9 billion, an increase of $2.6 billion, or 5.7% from last year. During the second quarter, our total company comps were positive 1.7%, with comps of positive 1.2% in May, positive 1.5% in June, and positive 2.3% in July. Comps in the U.S. were positive 1.3% for the quarter with comps of positive 0.5% in May, positive 1.2% in June, and positive 2.2% in July. In the second quarter, We received IEPA tariff refunds, which reduced our cost of goods sold by $685 million. While these refunds were received in the second quarter, they are being used to offset unplanned and rising cost pressures throughout the year. In the second quarter, our gross margin was 33.7%, An increase of approximately 25 basis points from the second quarter of last year, which was primarily driven by the benefit from the IAEFA tariff refund largely offset by incremental cost pressures related to fuel, energy, and other product input costs, as well as a change in mix as a result of the GMS acquisition. Our underlying gross margin performance was in line with our expectations. During the second quarter, operating expense as a percent of sales increased approximately 45 basis points to 19.4% compared to the second quarter of 2025. Our operating expense performance was in line with our expectations. Our operating margin for the second quarter was 14.3% compared to 14.5% in the second quarter of 2025. In the quarter, pre-tax intangible asset amortization was $178 million. Excluding the intangible asset amortization in the quarter, our adjusted operating margin for the second quarter was 14.7% Thank you. Thank you. for the second quarter were $4.79 compared to $4.58 in the second quarter of 2025. Excluding intangible asset amortization, our adjusted diluted earnings per share for the second quarter were $4.92, an increase of 5.1% compared to the second quarter of 2025. During the second quarter, we opened three new stores, bringing our total store count to 2,364. At the end of the quarter, merchandise inventories were $26.8 billion, up approximately $2 billion compared to the second quarter of 2025, and inventory returns were 4.5 times down from 4.6 times last year. Turning to capital allocation, during the second quarter, we invested approximately $880 million back into our business in the form of capital expenditures. And during the quarter, we paid approximately $2.3 billion in dividends to our shareholders. Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months, return on invested capital was 24.8%. Down from 27.2% in the second quarter of fiscal 2025. Now I will comment on our outlook for fiscal 2026. Our performance during the second quarter exceeded our expectations. We are encouraged with the underlying demand we see in the business and we are reaffirming our fiscal 2026 guidance. We expect to continue to grow our market share and for our comp sales to range between flat to 2% growth with total sales growth between approximately 2.5% and 4.5% reflecting the contribution of the GMS acquisition, new stores, new branches, and tuck-in acquisitions. For the year, we expect SRS to deliver mid-single-digit percent organic sales growth. We plan to open approximately 15 new stores and 40 to 50 new SRS branches. Our gross margin is expected to be approximately 33.1%. Further, we expect operating margin of approximately 12.4 to 12.6% and adjusted operating margin of approximately 12.8 to 13%. Our effective tax rate is targeted at approximately 24.3%. We expect net interest expense of approximately $2.3 billion. We expect our diluted earnings per share and adjusted diluted earnings per share to both increase approximately flat to 4% compared to fiscal 2025. We plan to continue investing in our business with capital expenditures of approximately 2.5% of sales for fiscal 2026. We believe that we will continue to grow market share as a result of our competitive advantages and ongoing investments by delivering the best experience in home improvement. Thank you for your participation in today's call, and Christine, we are now ready for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your mind is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.

Hey, thanks very much. Good morning. Billy, I was hoping you could comment on the broadening of the category strength in the quarter. You called out 13 areas. I guess double click on where you're seeing the strongest parts of the business and the outlook in the back half.

Yeah, thanks, Chuck, for the question. Yeah, as I mentioned in the prepared remarks, we saw 13 areas. We had, if you think about the core of our business, you know, electrical, plumbing, hardware, tools, both in-store and online. We had great performance online. I mentioned the double-digit positive comp. Those businesses were even greater than the online comp. But really the middle of the store, and to put that in context, If you look at our top 20 businesses across the store that drove a positive performance, only three of those 20 were actually in the seasonal business, so we feel really good about what's happening in the middle of the store and certainly much broader-based impact, as we mentioned in the prepared remarks.

Okay, that's great. And then, Richard, just on the tariff refund of $695 million, can you Speak to how much of that was for inventory that flowed through the P&L in 2Q versus how much was flowed through the P&L in prior quarters. And I guess, are you expecting any more refunds to help you in the back half of the year? And then when we think about next year and the lap of that $685 million, how should we think about that in terms of the gross margin impact?

Yes. Great. Thank you for the question. So let me just – let me give you some numbers to clarify the tariff refunds, and then we'll We received $730 million in tariff refunds during the quarter. We received all those right around the end of the month of June. And those refunds represent the vast majority of what we would expect to receive. for those IAEPA refunds that we filed for. There's an immaterial amount that we expect we may receive in the back half. Of that $730 million, $685 million reduced our cost of goods sold as they applied to products that had already been sold. The remaining $45 million remains in inventory and will hit the P&L as we turn inventory through the remainder of the year. And so let's just talk about the shape of the year, how this impacts the shape of the year, because your question is lapping into next year. So thinking about how they impacted the quarter, $685 million reduction in COGS was about a 145 basis point gross impact to margin. As we said in our prepared remarks, those benefits offset increased costs that we've seen in our cost base of about 60 basis points. So you can think about the net benefit of refunds in our P&L being around 85 basis points. And just to tie out the numbers, on gross margin real quickly. We also had the mixed impact of the GMS and Mingledorf acquisitions have an impact of about 60. So net benefit of tariff of 85 basis points, mixed impact of 60. So that gives you the year-over-year increase of about 25 basis points. So just talking about the nature of refunds, While we received those refunds in the second quarter, we've also experienced unplanned pressure from fuel, energy, and other product input costs that we expect will fully offset the benefit from tariff refunds over the year. And so if you think about the shape of the P&L, while those refunds are going to go to offset costs in Q2 and Q3, because we book all of the refunds when we receive the cash, You were going to see a little bit of a P&L shift between Q2 and Q3. And Billy, maybe just talk about the environment we're in and how we look at Paris.

Yeah, I mean, you mentioned, Richard, some of the inputs, the incremental inputs to what we planned coming into the year. Certainly, we've seen incremental cost pressure related to fuel, energy, Other product inputs, you can think of commodities with resin and metals. So we didn't have that in our plan as we came into the year, so those are incremental. And then the other piece I would mention that maybe gets overlooked is there's been some changes in tariffs incrementally relative to our planning process coming into the year. Section 101 expired in July. It was updated in February, expired in July. and replaced with the Section 301 piece. So those were actually also incremental to what we had forecasted coming into the year. So we're doing a great job of offsetting that. The merchant's doing a great job with our supply chain teams, but those are incremental pressures that we do not have, you know, as part of our outlook for 2026.

And so Chuck, just to get back to your question, because we expect the tariff refunds to be fully offset, By the incremental cost pressure that Billy called out, we've reaffirmed our guidance for the year. And so while you might see some lapping next year on a quarterly basis that we'll need to take you through, there shouldn't be a lap from an annual perspective when we head into 2027.

Yeah, it makes a lot of sense. Thank you both, and our best to Ted in his recovery. Thanks.

Thank you. Our next question comes from the line of Scott Ciccarelli with Truist. Please proceed with your question.

Good morning, guys. Two questions. First, just one more clarification on the comments on the cost pressures. Are we to assume an incremental 60 basis points of pressure in 3Q and 4Q, at least relative to initial plan? And then second, While higher rates, which obviously we're seeing in the markets right now, certainly don't help, based on your internal models, do higher rates actually hurt here, or do you think most of the damage has already been done? Thanks.

Sure. Thank you, Scott. I think you should think about this in the way we're thinking about it, is tariff refunds are going to offset costs in really a period sort of over Q2 and Q3. and I think what we would expect to see is that our gross margin rate in the fourth quarter will likely be right around flat compared to last year. So this is sort of a Q2 and Q3 dynamic which obviously just has a little complication of the timing of the receipt of the refunds. With respect to rates, I think As we've said over the past few years, housing turnover, just as one point in the economy that we watch, has been at historical lows. It has never been lower as a percentage of the housing stock. And every time we've seen it hit the sort of 3% of the housing stock changing hands, Over history, it's always bounced up relatively quickly. We've seen housing turnover at these low levels for four years now. So I don't think that we've seen much volatility from the recent increase in rates. We do know that when we see step-downs, we begin to see a little bit of life come into housing, but there's just no sign of an inflection point at this moment. Understood. Thanks, guys.

Thank you. Our next question comes from the line of Seth Sigman with Barclays. Please proceed with your question.

Great. Good morning, everyone, and wishing Ted a quick recovery from our side, too. I wanted to ask about the gap between total comps and Home Depot U.S. comps. Looks like it was the widest gap in a couple years. Can you talk a little bit more about that and Perhaps separating SRS, what's happening there, is that business back to positive in terms of comps, and then also just the international performance? Thanks so much.

Great, yes. Look, we were really pleased to see, so that gap between PIL Company Cup and U.S., first it reflects FX benefit of that 25 basis points, but we also had fantastic performance

Both Canada and Mexico outcompt the company, which was fantastic. I know we called up Canada last quarter, but it was great to see the acceleration in Canada. For the half, they just had a fabulous quarter and a half, where they positive comp in transactions and positive comp in units, which is fantastic. and Mexico has just been on this great run and they continue to be on a great run and we're just continuing to see just great results from that team as well. So this was just not a U.S. performance. This was across the company. So we are proud of the entire team, not only in the U.S. but Canada as well and Mexico.

Absolutely. And SRS comped above the company average this quarter. They were positive comped in all verticals and Looks like they're taking significant shares, so we couldn't be more pleased with that acquisition and how we're all working together.

Okay, great. Thank you for that. And then as you think about the comp guidance for the full year, I think it implies a pretty wide range of scenarios for the back half. The midpoint looks like it would be similar to the first half, but below the Q2 trend, despite easier comparison. So, I guess, how are you thinking about the scenarios and anything else, any other building blocks to think about the comps for the second half of the year? Thanks.

Sure. Well, look, we are really encouraged by the performance by our teams this quarter. And, you know, exceeded our expectations for the quarter. We have had a start to Q3 that's really consistent with the demand we saw in the second quarter. But we know what the environment is out there. We have a lot of volatility. As Billy said, we've got unplanned cost pressure that's significant in the market. And we have frozen housing conditions. And so with all of that, we're focused on controlling what we can control. We do think that the range remains appropriate. We think that, obviously, the further we go into the year, the extremes of the range become less likely, but we're just focused on controlling what we control.

Got it. All right. Thank you, guys.

Thank you. Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.

Good morning. Thank you so much for taking my question. We're all trying to figure out how much of the Home Depot's performance in the second quarter was a reflection of the actions that the company is taking and idiosyncratic to the Home Depot versus re-engagement from the consumer in home improvement. And so with that being said, If you could slice and dice it maybe two simplistic ways. One is your comp accelerated from the first to the second quarter by 110 basis points. Again, simplistically. How much of that do you think was accelerated market share gains versus the home improvement market accelerating a touch from the first to the second quarter? And second, are you seeing evidence of the consumer reengaging through things like app downloads, increased quotes through the bedroom, and more usage of the Magic Apron that gives you some degree of confidence that the bottom has been reached in home improvement demand and it's going to get better from here. Thank you.

Thank you, Michael. So, look, Ann and Billy are going to bring this to life, but the headline here for us this quarter is that our teams took share in a difficult environment. We're confident the investments that we've made are positioning us like no one else in the market. When we look out at the broader market, all the data that we see, what we hear from other constituents in the market, is that there remains tremendous pressure on our sector and on anyone connected with housing. When we look at our results with that overlay, we're confident we're taking share. and, you know, it really, it all starts in the stores. And so, Ann, maybe let's just talk about what we're doing.

Yeah, no, thanks. You know, Michael, we're seeing customers respond just so positively to the initiatives we're driving to further empower our association to deliver great customer service. And, to be honest, you know, it's simple, but it's important. It starts with the right product on the shelves in the quantities and specification the customer wants. And, We have been on this journey to improve our on-shop availability, and it remains at record levels. And why is that so important for us? This is kind of foundational to driving great customer service. And for me, and for the team, a high level of operational reliability, especially as stores play a more important role in delivery and fulfillment of our interconnected experience. But when you think about connectivity with our digital assets, it's better and faster fulfillment options. It's about having the best products and brands the customers want. And Billy and team have just been laser focused on driving innovation across the board. And their continuous effort has just been fantastic. So, Billy, innovation wins every day and your merchants are just fabulous. Well, we appreciate that.

No, Michael, it's a good question. We ask ourselves that a lot. We're probably tougher critics on ourselves than anybody, actually. But, you know, there's a number of different factors. I would go back to my prepared remarks. I mean, we are really pleased with our results, and we saw great strength across our entire business. And, you know, there's certainly, there's still a lot of pressure, obviously, on larger projects, discretionary finance projects. I mean, that's a continued... We just announced express delivery today nationwide across all stores that Ann talked about. And a number of different things I mentioned, big and bulky. And a lot of those come from out of our stores. So our store associates, our spy chain associates are doing an incredible job. And we're just trying to meet customers where they are. It all starts in the middle of that store and so we're really thrilled with the performance and the work that the teams are doing and hats off to the merchant group and all the work they're doing with our vendor partners.

And, you know, you called out, Michael, Magic Apron, and Jordan is in the room, and I think that is a really important enabler when you think about taking friction out of the experience, both for the associate and customer. So, Jordan, the team have just had just fantastic feedback across the board, so you want to kind of lean into just the Magic Apron component?

Yeah, absolutely. I mean, Michael, you referenced online and, you know, to Billy's comments, online grew 11% in the quarter. and we had an increase in traffic and an increase in conversion. You referenced the app. The app was our highest growth surface on all of our digital surfaces and that was exciting. And that's ahead of the planned refresh that we told you we've got coming in the back half, which is great. And then on Magic Apron, we're getting millions of questions per month now on Magic Apron. It's continued to grow. It's been a great tool for our customers. We've had great feedback. And Ann's references this morning were really to a more localized Thank you for joining us today.

Jordan, while we're on it, we've made a lot of investments and Billy called out Express. Maybe just we had an exciting release this morning.

Yeah, so we did put out a press release this morning on Express delivery. And I'd say there we've been working for the past couple of years on building the fastest fulfillment home improvement. And that's been a joint effort across merchandising stores, supply chain, We've talked to you about ship from best location as being a technology that we've leveraged to really bring all of the assets together for fast delivery. As Billy referenced, we're 65% now, same day, next day, on parcel that we stock, and 55% today, big and bulky. And then this morning when we announced this express, we've had this in some markets for several months, but we just announced a nationwide rollout. This is onhomedepot.com. A customer can pay a small flat fee. Thank you all for joining us today.

Thank you for all that helpful information. My follow-up question is on the gross margin. There's some discussion in the market this morning around did Home Depot miss the consensus profitability forecast for the second quarter if one were to exclude the tariff refund? So with that being said, Richard, if you could walk us through the factors that led to 117 basis points of gross margin pressure Thank you. Sure. Look, Michael, I first want to talk about our consistent ability to deliver results and maintain stable gross margins.

and we'll come back to that. But if you look at 2025, let's take 2025 as an example. We had a significantly different cost environment during the year than we expected when we entered 2025. And if you look at our results, we hit our gross margin plan on the button if you put acquisition mix impact aside. And so I'd say in fact the history of Billy and his team over the last Five or so years is that we've had unprecedented volatility in our cost environment, and yet we have delivered year after year after year. What tariff refunds allowed us to do was offset increased costs in our environment, and it allowed us to maintain value in the market. If you think about it, tariff refunds are a market-born 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. And the market is seeing that in the form of values that have been maintained through the quarter in the face of a pressured cost environment. So just Going through the, you called out the math, I'll just call it around 120 basis point pressure. 60 basis points of that is in the form of increased costs that we were able to offset with tariff-free funds. And then the other 60 basis points was simply the mixed impact of GMS and Mingledorf. Recall that we acquired GMS in September of 25. That's just a lap of GMS not being on our books in Q2 of last year. I'm confident, and Billy's confident, had we not had tariff refunds, we would have exceeded our expectations for the quarter regardless. It just came in a different form. That's right. Bill, anything to add on that? No. Thank you, Ryan.

Thank you so much.

Thank you.

Our next question comes from the line of Kate McChain with Goldman Sachs. Please receive your question.

Hi. Good morning. Thanks for taking our question. We wanted to focus our question on Ticket. We know this is one of your stronger comps, but it did appear all Ticket-led. Can you just speak to the dynamics within Ticket? Just how much was from the same skew inflation that you may have seen during the quarter and anything else that may have contributed during Q2?

Yeah, thanks, Kate, for the question. There was some same skew AUR, as we've talked about previously on calls based on some of the cost inputs and so forth. We also saw categories, as I mentioned, Refrigeration, portable power, patio, larger ticket items. Think single purchase items, you know, not financed, but think more single purchase items that really help drive that as well. We had some intra-category mix with people trading up inside of categories. Then you've got, you know, kind of mix as part of that just, you know, Q2 being the season that it is and selling more riders is one example, but really think of single purchases being the Thank you.

And just a follow-up question to that. I know in an answer to another question, you talked about the extremes of the comps. But if that ticket were to hold for the rest of the year and traffic were to get slightly better, wouldn't we be kind of at the higher end to maybe above the highest end? and, you know, what would that mean and what would the scenario be in which we could see that?

Well, that's certainly, yeah, Kate, that's certainly the math. As you mentioned, for sure, there's still so much volatility, as Richard mentioned, that, you know, we think we gave the prudent guidance and, you know, we'll be back at the end of Q3 and give a broader view for the end of the year.

Thank you.

Our next question comes from the line of Christopher Horvers with JP Morgan. Please proceed with your question.

Thanks, and good morning, everybody. Following up on the sort of underlying demand of the business, there are always a lot of weather impacts in the first half of the year. How do you look at the monthly performance during 2Q, given the softer start where weather probably hurt, but you also accelerated sacks in July. So as we try to tease out the right underlying trend, how do you think about that? And related to that, on the SRS side, I think SRS comp below the company average in the first half. I think they were up in two view, down in one queue. So, you know, give that mid-single digit comp expectation. Does the gap between the U.S. and the total comp actually widen in the back half of the year, given it looks like SRS becomes more accretive to the total?

Yeah, Chris, it's silly. Let me take the first part. and then we'll circle back in the SRS piece. As it relates to the monthly cadence and you mentioned some of the weather pieces, there's actually just two really small pieces that drove that. In 2025, we typically get one week a year in the country that has significant heat. It's as simple as this. In 2025, that happened at the end of June, so that would have been in our Thank you. Thank you. And when you extract just that week out from May, May was literally the exact same comp performance as we had in June and July when you just do the offset for AC. So very consistent across the board. And as I mentioned earlier, only three of our 20 top classes of business were seasonally related for the balance of the quarter as well.

And as far as SRS goes, it's true that they have accelerated through the year. In the back half of 2025, we saw the least amount of storm activity in many years, and SRS was pressured by the lack of that activity, and you can actually see that in statistics that are published out in the market. I think shingle shipments, Billy, were down 27%, 29% or something like that in the fourth quarter. That's right. We're early in the second half, and we'll see how that all pans out. We do expect that SRS will deliver mid-single-digit organic growth for the year. I think it's also important to point out things that we're excited about. It's not just SRS by itself, but how all of this is coming together. When you talk about the pro, it really starts in the stores. When we think about SRS, Ann-Marie, let's talk about what we're seeing in the center of the Quote Center.

Yeah. Super excited about what SRS brings to the table and what we're enabling in the store. So, for many of you, you know Quote Center is a marketplace that has historically allowed our stores to enable larger product sales through this third-party network of distributors. Now that we own SRS and GMS, you know, to your point, Richard, you know, our pro and sales team have access to this SRS full catalog and now are able to close sales within the Home Depot family, which is just fantastic. Giving our customers this higher level of service capability than before. And just a couple of stats, I think, which is, you know, pretty kind of, you know, exciting, is that sales through the code center facilitated by SRS is growing rapidly. and the adoption is fantastic. And within the last 12 months, 90% of our stores have closed a sale through SRS. And so when you start there and your associates in-store understand the full catalog and the capability that SRS will, it brings, it just brings confidence to that entire team and we're able to leverage the entire ecosystem.

And so it really, it starts with the stores and then expands to really the All the components we've built in pro, just specifically at SRS, again, we're capturing significant incremental sales to home builders, commercial customers, and remodelers across the verticals because you think about the combination of product catalog across Home Depot and SRS, like Ann pointed out, and now GMS and HVAC, this expanded catalog is resonating. And our pro customers tell us that what we're building is unique. and it's truly compelling for them.

Thank you for that. And my follow-up is, as you think about the tariff dynamics in the second quarter and how it plays out into the back half and into 2027, you know, was there any SG&A shift into 2Q that is some of the offset to the gross margin, negative gross margin headwind in the third quarter? And then as you get to 27, the message is, We're starting clean into 27, so we're going to build off where our guide is currently. So is the message that, you know, ultimately, should oil prices and energy prices stay here, we'll do something, whether it's pricing or efficiencies, that'll ultimately mitigate that so it's not a divot in the out year?

Thank you, Chris. So that's right. I think the most important point you made there is that We've reaffirmed guidance and our jumping off point from the end of the year is a clean jumping off point. With respect to Q2 expenses, I think we gave the indication earlier this year expenses are going to be a little bit lumpy through the year. We had FIFA marketing expense, which wound up being an incredible campaign for us, by the way. And so I wouldn't really put much into the expense. Over the year, that will likely land exactly where we anticipate it would. But look, we're accustomed to managing any cost environment, right, Billy?

Yeah, I mean, this almost seems normalized a little bit from where we've been historically, certainly in 2025. I'm not sure all of the teams feel that way, but listen, we've got a great track record of being able to manage that. Our next question comes from the line of Jihan Ma with Bernstein. Please repeat with your question.

Thank you for taking my question. Just to follow up on the ticket side of things, as you start lapping some of the tariffs and price increases from last year, but obviously you're also facing continuous cost headwinds, how do you think about AUR for the back half of the year, and if there are going to be any needs for price reinvestment?

Yeah, thanks, Yanan. I think that that's factored into our guide for the back half of the year that Richard talked about a little bit earlier, so we don't see any changes from what we've already communicated.

And a longer-term question, you recently announced an organizational realignment, I think a couple weeks ago. Could you just share a bit of color on why the changes and then why now?

Yeah, we're always evolving to better align our organization around our strategy, and these changes are part of what we do to evolve. They'll allow us to work smarter, move faster, and innovate more quickly.

Thank you.

And Christine, we have time for one more question.

Thank you. Our final question comes from the line of Zach Fadum with Wells Fargo. Please proceed with your question.

Good morning. So my first question is on cross-sell between SRS and GMS. You talked about $400 million for the year. My first question is how you would expect that to build through the year. What did you see in Q2? What are the expectations in the second half of the year?

Well, that's the amount we expect through the year, but I think it's important. It's not just among SRS and GMS. As Ann referenced, That's cross-selling we expect across the entire system. And, you know, it actually, I think you need to think about pro starting in the store and us penetrating more deeply into the wallet of that in-store pro. And Ann, maybe just comment on that.

I do think that's where we start because investments during the horse sales come from our in-store pros. and we have to win with them every day. And so we've talked about this over the past few years as we have evolved some of the things we do in store, not only our staffing model, but we've provided tools and technology for pro desks to really enable a more effective experience for our associates and the pro they serve. And we know our ability to grow the share with the pros is by adding capabilities to win more of their complex purchases. and we have seen traction with those pros who interact with these capabilities. So it's not just about SRS or one component, it's about the entire ecosystem that really enables us to make a difference and help them drive momentum. And I think this is super important because Mike and team just continue to work on these capabilities Mike, you want to just add some of the things that you guys are doing?

Yes, sure. I mean, as Richard and Ann both point out, we continue to see very steady progress and success in our pro business from the investments made in the pro ecosystem. Notably, we see advances made in our investments in order management and delivery capabilities. This is pretty evident by us achieving the highest levels of on-time and complete for flatbed and box truck deliveries, along with the customer satisfaction scoring that we're seeing this past quarter. and these come as a result of the investments that Ann talked about and things like self-serve site instructions along with investments in capturing our pros' business hours of operations and continued advances in delivery tracking capabilities which help around visibility and transparency. And on top of this, the investments in our B2B experience are resulting in outsized online growth with our pros and that includes the Increasing use of our project planning tool, which helps us organize and stage deliveries for larger, more complex pros. We're also seeing pros build material lists and purchase more with the use of our AI-powered material list builder. And we continue to invest in search and our B2B experience, along with improvements to the app, making it much more responsive and faster. So these capabilities allow us to earn a greater wallet share with the pro, and coming all the way back to Some of the specific of your questions, Zach, and Ann talked about Quote Centre and the success that we've seen there. We've had success in the past working with HD Supply and the purchase card that their customers use inside of our stores and we've started to roll out the SRS purchase card as well to be able to use in our stores. And as you pointed out, with things like National Production Home Builders, SRS itself leveraging GMS in terms of those relationships in the past we've seen

Thank you, Mike, and to wrap it up, look, the teams across Pro have never worked more tightly together. We're seeing great momentum, and we think we're building something unique in the marketplace that's never existed before, and our customers tell us it's resonating with them, and that's why we think we've seen the success we have so far this year.

Really appreciate all the color and just a quick follow-up because I don't want to belabor the gross margin question too much, but just to iron out the confusion bridging the gap from Q2 to the second half of the year, we know tariff refunds, that benefit rolls off from Q2 to Q3. Q3, the roughly 60 basis points of GMS mixed pressure, that also rolls off. Could we help understand whether the 60 basis points of fuel and freight is transitory versus something like a freight contract that would enter the base for a year or longer?

You're mostly talking about market-borne pressure incrementally kind of across product input costs and across fuel and energy. But just maybe to answer your question specifically, since we've had a couple questions on it, the timing of the refunds, again, created a timing benefit in gross margin that you're likely going to see offset to a degree in Q3, right? So the benefit was seen in Q2. We are able to use that economic benefit to offset costs, and that offset is largely a Q2 and Q3 kind of dynamic. And then again, just to repeat it, by Q4, we expect that we will see our gross margin to be relatively flat versus last year.

Thanks for the time.

Thank you.

Ms. Janci, I'd like to turn the floor back over to you for closing comments.

Thank you everyone for joining us today. We look forward to speaking with you on our third quarter earnings call in November.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.