Home Depot's headline numbers improved, but less than half of the revenue increase came from selling more home improvement goods. Consolidated net sales rose 5.7% to $47.86 billion, yet the GMS acquisition alone contributed $1.4 billion of the $2.58 billion increase, a weaker U.S. dollar added a further $105 million, and a one-time $685 million tariff refund was booked as a reduction of cost of goods sold. Strip that refund out and operating income fell 6.1% to $6.15 billion from $6.55 billion, with operating margin compressing to 12.9% from 14.5%. Comparable sales rose just 1.8% — and got there the wrong way, with average ticket up 2.8% against a 1.0% decline in customer transactions. For a retailer whose core store segment grew 1.5% on falling traffic, the gap between reported and underlying performance is the entire story of this quarter.
Note on period labels: this filing is The Home Depot's Fiscal Q2 2026 Form 10-Q, covering the quarter ended August 2, 2026. Home Depot's fiscal 2026 ends January 31, 2027. All period names below follow the company's own convention.
1. Consolidated Balance Sheet
1-1. Major asset items
The comparison below is August 2, 2026 against February 1, 2026 — the fiscal year-end. This is a seasonal comparison, not a year-over-year one. Spring and summer are peak season for home improvement, so receivables, inventory and payables all build naturally into August. Read the percentages with that in mind.
| Item | Feb 1, 2026 ($M) | Aug 2, 2026 ($M) | Change % |
|---|---|---|---|
| Cash and cash equivalents | 1,389 | 2,085 | +50.1% |
| Receivables, net | 5,597 | 6,963 | +24.4% |
| Merchandise inventories | 25,817 | 26,847 | +4.0% |
| Net property and equipment | 28,021 | 28,147 | +0.4% |
| Goodwill | 22,344 | 22,899 | +2.5% |
| Intangible assets, net | 10,329 | 10,482 | +1.5% |
| Total assets | 105,095 | 109,384 | +4.1% |
Source: Form 10-Q consolidated balance sheets, Q2 FY2026.
Receivables built quickly during the first half. The cash flow statement is the better gauge: the change in receivables consumed $1,233 million in the six months ended August 2, 2026, compared with $986 million in the prior-year first half — a 25% increase in working capital drag.
The composition matters. Customer receivables — which the company defines as credit extended directly to certain customers in the ordinary course of business — rose 37.4% to $3,557 million from $2,588 million. This is the balance-sheet footprint of the Pro strategy. Home Depot does not break out customer receivables by segment, but growth here is consistent with the SRS and GMS distribution businesses, where trade credit is standard, as well as the consolidation of Mingledorff's receivable balances upon its May 11 acquisition. The company states its valuation allowance was not material at either date, so there is no reported credit deterioration yet. But extending more credit to construction contractors while housing activity is soft is a genuine exposure, and it is growing.
Goodwill rose $555 million in the half; of that, $412 million came from Mingledorff's, with the balance reflecting other smaller acquisitions ($151 million) and an $8 million negative currency translation effect. Intangible assets, net, rose only $153 million — a number that understates the underlying activity. Mingledorff's brought in $410 million of definite-lived intangibles (customer relationships and trade names, weighted-average life 21 years), but $257 million of intangible amortization during the period absorbed most of that addition. Goodwill and intangibles together now stand at $33.4 billion, roughly 30% of total assets and slightly more than double total equity.
Net property and equipment was essentially flat, and the composition is worse than the headline. Finance lease assets embedded within net PP&E rose $128 million over the half while the total line rose only $126 million — meaning owned property and equipment, net of depreciation, actually shrank. Capital expenditures were $1,724 million for the half against $1,723 million a year earlier: flat in nominal terms, and therefore down in real terms, for a company that describes itself as investing in its store base. Store count was 2,364 at quarter-end after three new U.S. openings in the quarter.
Total lease assets were $11,991 million — operating right-of-use assets of $9,300 million plus finance lease assets of $2,691 million embedded in net property and equipment. Total lease liabilities were $12,765 million, composed of operating lease liabilities of $9,671 million ($1,516 million current, $8,155 million long-term) and finance lease liabilities of $3,094 million ($303 million current, $2,791 million long-term). On a like-for-like basis, operating lease assets of $9,300 million compare to operating lease liabilities of $9,671 million. This is a routine ASC 842 position with no meaningful change from year-end.
On debt maturity: total debt including finance lease obligations was $52.90 billion — $4,248 million of short-term commercial paper, $4,697 million of current installments of long-term debt, and $43,951 million long-term. (The finance lease liabilities noted above sit inside the current-installment and long-term debt captions, not alongside them.) That places 16.9%, or $8.9 billion, inside twelve months. The commercial paper carried a weighted average interest rate of 3.8%, up from 3.7% at year-end, and peaked at $6.2 billion outstanding during the half. Cash of $2.1 billion does not cover the near-term stack on its own — and $1.4 billion of that cash is held by foreign subsidiaries — but $11.4 billion of first-half operating cash flow and undrawn back-up credit facilities do. The maturity profile is serviceable rather than risk-free.
1-2. Debt structure — financial versus operating liabilities
Total debt and finance lease obligations fell to $52.90 billion from $55.77 billion at year-end, as Home Depot repaid $1.3 billion of 3.00% senior notes in April 2026 and $1.5 billion of 5.15% senior notes in June 2026, and issued no new senior notes. Operating liabilities moved the other way. Accounts payable rose 18.2% to $13,585 million from $11,491 million, and accrued expenses and deferred revenue also increased. The company is funding its seasonal working capital with supplier credit while paying down borrowed money. Supplier finance program obligations were $542 million against $414 million at year-end — small relative to payables, and disclosed within accounts payable.
One market signal sits in the fair value note. Home Depot's senior notes carry at $44,905 million but have a fair value of $39,859 million — $5.05 billion below book. The company's legacy low-coupon debt is worth less than face in today's rate environment, which is an economic advantage to the borrower, not a warning.
1-3. Capital structure
Total equity rose 30.1% to $16,617 million. The increase is arithmetic rather than strategic: retained earnings grew $3,412 million, being $8,055 million of net earnings less $4,643 million of dividends, with paid-in capital adding $428 million.
The equity ratio of 15.2% looks alarming until the treasury stock line is read. Home Depot carries $95,971 million of treasury stock — decades of accumulated buybacks — against $97,949 million of retained earnings. Contributed capital is only $15.3 billion. The thin book equity is a repurchase artifact, not financial distress.
What matters more is that treasury stock did not move at all during the half. Home Depot bought back no shares, and has not since March 2024, when it paused repurchases in connection with the SRS acquisition. The company states it has no plans to resume repurchases in fiscal 2026 as it seeks to reduce outstanding debt, and roughly $11.7 billion of the $15.0 billion August 2023 authorization remains unused. That pause has a visible cost: return on invested capital for the trailing twelve months fell to 24.8% from 27.2% a year earlier, which management attributes primarily to the higher average equity the pause creates. Equity is rising because cash is going to debt paydown and acquisitions instead of shareholders — and returns on that larger equity base are falling.
2. Consolidated Statement of Earnings
2-1. Core performance
| Item | Q2 FY2025 ($M) | Q2 FY2026 ($M) | Change % |
|---|---|---|---|
| Net sales | 45,277 | 47,861 | +5.7% |
| Gross profit | 15,125 | 16,115 | +6.5% |
| Gross margin (%) | 33.4 | 33.7 | — |
| SG&A | 7,764 | 8,424 | +8.5% |
| Operating income | 6,555 | 6,839 | +4.3% |
| Operating margin (%) | 14.5 | 14.3 | — |
| Net earnings | 4,551 | 4,766 | +4.7% |
| Diluted EPS ($) | 4.58 | 4.79 | +4.6% |
Source: Form 10-Q consolidated statements of earnings, Q2 FY2026.
Reported results look acceptable. They are not what they appear.
During the quarter Home Depot received approximately $730 million in refunds of tariffs imposed under the International Emergency Economic Powers Act, following the U.S. Supreme Court's February 20, 2026 decision invalidating them and the Court of International Trade's subsequent order directing Customs and Border Protection to process refunds administratively. Of that, $685 million was recognized as a reduction of cost of goods sold, with the remainder reducing inventory cost. Nearly all of it landed in the Primary segment. Home Depot did not present an adjusted figure excluding this benefit — it flows straight through GAAP gross profit.
Two features of this refund matter more than its size. First, the company states the $730 million represents "the vast majority of our expected refunds" — so this cushion does not repeat, and the third quarter has to stand on its own. Second, the refund also generated interest income: interest income and other, net swelled to $59 million from $25 million, which the filing attributes to interest received on the IEEPA refunds. The normalization below strips only the $685 million in cost of goods sold, so it is if anything generous to the reported figures.
Separating the one-off from the recurring changes the picture completely. Removing the $685 million gives normalized gross profit of $15,430 million, a margin of 32.2% rather than the reported 33.7%, and below the prior year's 33.4%. Normalized operating income becomes $6,154 million, down 6.1% from $6,555 million, at a 12.9% margin against 14.5%. Applying the 24.5% effective tax rate, normalized net earnings are roughly $4,249 million and normalized diluted EPS about $4.27, versus $4.58 a year ago. The reported $0.21 EPS increase becomes a decline of roughly $0.31. (These normalized figures are this publication's calculation, not company-reported.)
Operating leverage was weak even before adjustment. Sales grew 5.7% while operating income grew 4.3% — every 1% of sales growth produced only 0.76% of operating profit growth. Normalized, leverage is outright negative: sales up, profit down. SG&A rose 8.5%, half again as fast as sales, and reached 17.6% of net sales from 17.1%; management attributes this plainly to "higher operating costs relative to comparable sales performance."
The underlying demand picture is thinner than 5.7% sales growth suggests. Total comparable sales rose 1.8% in the quarter, built on a 2.8% increase in average ticket against a 1.0% decline in comparable customer transactions — Home Depot is serving fewer visits at higher prices. Foreign exchange added roughly 25 basis points of that 1.8%. Management's own characterisation is that customers are engaging with "smaller repair and maintenance projects" amid "consumer uncertainty and housing affordability pressure."
2-2. Where the growth and the margin loss actually sit
The segment disclosure is the most revealing table in the filing.
| Q2 | Primary FY2025 | Primary FY2026 | Other FY2025 | Other FY2026 |
|---|---|---|---|---|
| Net sales ($M) | 42,157 | 42,806 | 3,120 | 5,055 |
| Sales change | — | +1.5% | — | +62.0% |
| Operating income ($M) | 6,354 | 6,592 | 201 | 247 |
| Operating margin (%) | 15.1 | 15.4 | 6.4 | 4.9 |
Source: Form 10-Q segment reporting note, Q2 FY2026.
The Primary segment is the retail stores in the U.S., Canada and Mexico. "Other" is the SRS distribution business — five non-reportable operating segments (roofing and building products, interior and construction products, landscape, pool, and, since May, HVAC), operating over 1,340 locations. GMS sits inside SRS's interior and construction products line. Two things stand out.
First, the core retail business grew 1.5%. Its reported margin expansion to 15.4% is entirely the tariff refund, which the filing says was recognized nearly all within Primary. Removing $685 million from Primary operating income gives $5,907 million, down 7.0%, at a 13.8% margin against 15.1% — meaning the underlying retail business, absent the one-time refund, lost 130 basis points of margin year on year.
Second, the Other segment — the SRS distribution network — grew 62.0% in reported sales, to $5,055 million from $3,120 million, with the GMS acquisition driving the majority of the $1,935 million increase. Operating income rose from $201 million to $247 million, but operating margin fell from 6.4% to 4.9%. Scale is accumulating in the distribution platform; returns per dollar of revenue are not.