HOME DEPOT, INC. (HD)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion provides an analysis of the Company’s financial condition and results of operations from management’s perspective and should be read in conjunction with the consolidated financial statements and related notes included in this report and in the 2025 Form 10-K and with our MD&A included in the 2025 Form 10-K.

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EXECUTIVE SUMMARY

For the second quarter of fiscal 2026, net sales were $47.9 billion and net earnings were $4.8 billion, or $4.79 per diluted share. For the first six months of fiscal 2026, net sales were $89.6 billion and net earnings were $8.1 billion, or $8.09 per diluted share.

During the first six months of fiscal 2026, we generated $11.4 billion of cash flow from operations. This cash flow, together with cash on hand, was used to fund $4.6 billion in cash dividends, repay $3.0 billion of long-term debt, fund $1.7 billion in capital expenditures, and fund $1.3 billion in acquisitions.

In February 2026, we announced a 1.3% increase in our quarterly cash dividend to $2.33 per share.

Our inventory turnover ratio was 4.5 times at the end of the second quarter of fiscal 2026, compared to 4.6 times at the end of the second quarter of fiscal 2025.

Our ROIC for the trailing twelve-month period was 24.8% at the end of the second quarter of fiscal 2026 and 27.2% at the end of the second quarter of fiscal 2025. The decrease in ROIC was primarily driven by higher average equity due to our ongoing pause in share repurchases. See the Non-GAAP Financial Measures section below for our definition and calculation of ROIC.

During the second quarter of fiscal 2026, we opened three new stores in the U.S., resulting in a total store count of 2,364 at August 2, 2026. A total of 325 stores, or 13.7%, were located in Canada and Mexico. At the end of the second quarter of fiscal 2026, we also operated over 1,340 locations within our SRS non-reportable operating segments throughout the U.S. and Canada.

Tariffs and Other Trade Policy Matters

We continue to monitor developments related to tariffs and other trade policy matters, including the effects of the U.S. Supreme Court decision invalidating tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”), ongoing litigation, and the implementation of additional tariffs. During the second quarter of fiscal 2026, we began receiving IEEPA tariff refunds pursuant to the U.S. Supreme Court ruling, and as of August 2, 2026, we had received approximately $730 million in IEEPA tariff refunds, representing the vast majority of our expected refunds. Approximately $685 million of these refunds were recognized as a reduction of cost of goods sold, with the remaining amount recorded as a reduction of inventory cost, nearly all within our Primary segment. Interest received in connection with the IEEPA tariff refunds was recognized within interest income and other, net on the consolidated statement of earnings.

As tariff and trade policy discussions are ongoing and related matters continue to evolve, we cannot predict with certainty their ultimate impact on our business in future periods, including our results of operations and cash flows. For more information on these risks and uncertainties see Part I, Item 1A. “Risk Factors” of our 2025 Form 10-K.

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RESULTS OF OPERATIONS

The following table presents the percentage relationship between net sales and major categories in our consolidated statements of earnings.

FISCAL 2026 AND FISCAL 2025 THREE MONTH COMPARISONS

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Note: Certain percentages may not sum to totals due to rounding.

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(1)Customer transactions and average ticket measures do not include results from HD Supply or SRS.

(2)Average ticket represents the average price paid per transaction and is used by management to monitor the performance of the Company, as it represents a primary driver in measuring sales performance.

Sales

We assess our sales performance by evaluating both net sales and comparable sales.

Net Sales. Net sales for the second quarter of fiscal 2026 were $47.9 billion, an increase of 5.7% from $45.3 billion for the second quarter of fiscal 2025. The increase in net sales for the second quarter of fiscal 2026 was primarily driven by sales from GMS, which was acquired on September 4, 2025 and contributed $1.4 billion of incremental net sales during the second quarter of fiscal 2026, as well as the impact of a positive comparable sales environment. Net sales also increased due to sales from our acquisition of Mingledorff’s as well as sales from new stores and branches.

Online sales represented 16.6% of net sales during the second quarter of fiscal 2026 and increased by 11.0% compared to the second quarter of fiscal 2025. Online sales consist of sales of products generated through websites and mobile applications and do not include results from HD Supply or SRS.

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A weaker U.S. dollar compared to the second quarter of fiscal 2025 positively impacted net sales by $105 million during the second quarter of fiscal 2026.

Comparable Sales. Comparable sales is a measure that highlights the performance of our existing locations and websites by measuring the change in net sales for a period over the comparable prior period of equivalent length. Comparable sales includes sales at locations, physical and online, open greater than 52 weeks (including remodels and relocations) and excludes closed stores. Acquisitions are typically included in comparable sales after they have been owned for more than 52 weeks. Comparable sales is intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP. The method of calculating comparable sales varies across the retail industry. As a result, our method of calculating comparable sales may not be the same as similarly titled measures reported by other companies.

Total comparable sales for the second quarter of fiscal 2026 increased 1.7%, primarily reflecting a 2.8% increase in comparable average ticket, partially offset by a 1.0% decrease in comparable customer transactions compared to the second quarter of fiscal 2025. Foreign exchange rates positively impacted comparable sales by approximately 25 basis points for the second quarter of fiscal 2026. Our comparable sales results reflect customer engagement with smaller repair and maintenance projects, despite the impact of consumer uncertainty and housing affordability pressure on home improvement demand.

During the second quarter of fiscal 2026, our Storage & Organization, Electrical, Hardware, Power, Plumbing, Indoor Garden, Kitchen & Blinds, Paint, Bath, Outdoor Garden, Building Materials, Flooring, and Millwork merchandising departments within our Primary segment posted positive comparable sales compared to the second quarter of fiscal 2025.

Gross Profit

Gross profit for the second quarter of fiscal 2026 increased 6.5% to $16.1 billion from $15.1 billion for the second quarter of fiscal 2025. Gross profit as a percentage of net sales, or gross profit margin, was 33.7% for the second quarter of fiscal 2026 compared to 33.4% for the second quarter of fiscal 2025. The increase in gross profit margin during the second quarter of fiscal 2026 reflects the benefit from IEEPA tariff refunds, largely offset by incremental cost pressures related to fuel, energy, and other product input costs, as well as the inclusion of GMS in our consolidated results.

Operating Expenses

Our operating expenses are composed of SG&A and depreciation and amortization.

Selling, General & Administrative. SG&A for the second quarter of fiscal 2026 increased $660 million, or 8.5%, to $8.4 billion from $7.8 billion for the second quarter of fiscal 2025. As a percentage of net sales, SG&A was 17.6% for the second quarter of fiscal 2026 compared to 17.1% for the second quarter of fiscal 2025, primarily reflecting higher operating costs relative to comparable sales performance.

Depreciation and Amortization. Depreciation and amortization for the second quarter of fiscal 2026 increased $46 million, or 5.7%, to $852 million from $806 million for the second quarter of fiscal 2025. As a percentage of net sales, depreciation and amortization was 1.8% for both the second quarter of fiscal 2026 and 2025.

Interest and Other, net

Interest and other, net was $524 million for the second quarter of fiscal 2026 compared to $550 million for the second quarter of fiscal 2025. As a percentage of net sales, interest and other, net was 1.1% for the second quarter of fiscal 2026 compared to 1.2% for the second quarter of fiscal 2025, and reflects higher interest income due to interest received from IEEPA tariff refunds during the second quarter of fiscal 2026.

Provision for Income Taxes

Our combined effective income tax rate was 24.5% for the second quarter of fiscal 2026 compared to 24.2% for the second quarter of fiscal 2025.

Diluted Earnings per Share

Diluted earnings per share were $4.79 for the second quarter of fiscal 2026 compared to $4.58 for the second quarter of fiscal 2025. The increase in diluted earnings per share was primarily driven by higher net earnings during the second quarter of fiscal 2026.

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FISCAL 2026 AND FISCAL 2025 SIX MONTH COMPARISONS

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion provides an analysis of the Company’s financial condition and results of operations from management's perspective and should be read in conjunction with the consolidated financial statements and related notes included in this report. The discussion in this Form 10-K generally focuses on fiscal 2025 compared to fiscal 2024. A discussion of our results of operations and changes in financial condition for fiscal 2024 compared to fiscal 2023 has been omitted from this report, but can be found in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Form 10-K for fiscal 2024. For purposes of comparison, fiscal 2025 and fiscal 2023 include 52 weeks and fiscal 2024 includes 53 weeks.

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EXECUTIVE SUMMARY

We reported net sales of $164.7 billion in fiscal 2025. Net earnings were $14.2 billion, or $14.23 per diluted share.

During fiscal 2025, we generated $16.3 billion of cash flow from operations, received $4.1 billion of proceeds from commercial paper borrowings, net of repayments, and received $2.2 billion of proceeds from the issuance of long-term debt, net of discounts. This cash flow, together with cash on hand, was used to fund $9.2 billion in cash dividends, repay $5.0 billion of long-term debt, and fund $3.7 billion in capital expenditures. As described below, we also completed the GMS acquisition for aggregate cash consideration totaling approximately $5.5 billion, including the repayment of certain of GMS’s outstanding debt.

In February 2026, we announced a 1.3% increase in our quarterly cash dividend to $2.33 per share.

Our inventory turnover ratio was 4.4 times at the end of fiscal 2025, compared to 4.7 times at the end of fiscal 2024. The decrease in our inventory turnover ratio was primarily driven by higher average inventory levels during fiscal 2025.

Our ROIC was 25.7% for fiscal 2025 and 31.3% for fiscal 2024. The decrease in ROIC was primarily driven by higher average equity due to our ongoing pause in share repurchases and higher average long-term debt largely due to the financing of the SRS acquisition. See the Non-GAAP Financial Measures section below for our definition and calculation of ROIC.

During fiscal 2025, we opened ten new stores in the U.S. and two new stores in Mexico, resulting in a total store count of 2,359 at February 1, 2026. A total of 324 of our stores, or 13.7%, were located in Canada and Mexico. At the end of fiscal 2025, we also operated over 1,250 locations within our SRS non-reportable operating segments throughout the U.S. and Canada.

GMS Acquisition

On June 29, 2025, we entered into a definitive agreement to acquire GMS, a leading distributor of specialty building products, including drywall, ceilings, steel framing and other complementary construction products, through branches located across the U.S. and Canada. Under the terms of the merger agreement, we, through a wholly owned subsidiary, made a cash tender offer to purchase all outstanding shares of GMS common stock for $110 per share. All conditions of the offer were satisfied, including receipt of the requisite regulatory approvals, and the merger was completed on September 4, 2025. As a result of the merger, GMS became a direct subsidiary of SRS and an indirect, wholly owned subsidiary of the Company. We believe the GMS acquisition will enhance SRS's position as a leading multi-category building materials distributor, bringing differentiated capabilities, product categories and customer relationships that are highly complementary to SRS's existing business. Refer to Note 13 to our consolidated financial statements for further discussion on the acquisition.

Tariffs and Other Trade Policy Matters

We continue to monitor developments with respect to tariffs and other trade policy matters closely, including impacts from the recent U.S. Supreme Court decision that struck down tariffs imposed under the International Emergency Economic Powers Act. We have worked, and continue to work, diligently to diversify our global supply chain and to implement other cost mitigation initiatives. While we experienced increased costs as a result of tariffs in fiscal 2025, our actions, including diversification efforts and some price increases, along with our scale, vendor relationships, experienced internal teams, and other initiatives allowed us to effectively mitigate the impact on our results of operations. We plan to continue to assess our sourcing and other mitigation strategies to maintain a strong value proposition for our customers and believe we remain well positioned to manage the impact that tariffs in effect as of the date of this filing are expected to have on our business.

As trade policy discussions are ongoing and related developments continue to evolve, we cannot predict with certainty their ultimate impact on our business in future periods, including our results of operations and cash flows. For more information on these risks and uncertainties see Part I, Item 1A. “Risk Factors.”

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RESULTS OF OPERATIONS

The following table presents the percentage relationship between net sales and major categories in our consolidated statements of earnings:

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Note: Fiscal 2025 and fiscal 2023 include 52 weeks. Fiscal 2024 includes 53 weeks. Certain percentages may not sum to totals due to rounding.

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(1)Does not include results from the 53rd week of fiscal 2024.

(2)Customer transactions and average ticket measures do not include results from HD Supply or SRS (including GMS).

(3)Average ticket represents the average price paid per transaction and is used by management to monitor the performance of the Company, as it represents a primary driver in measuring sales performance.

(4)The 53rd week of fiscal 2024 increased diluted earnings per share in fiscal 2024 by approximately $0.30.

FISCAL 2025 COMPARED TO FISCAL 2024

Sales

We assess our sales performance by evaluating both net sales and comparable sales. Fiscal 2025 consisted of 52 weeks compared to 53 weeks in fiscal 2024. For purposes of the following discussion, comparable sales, comparable customer transactions, and comparable average ticket are based upon the comparable 52-week period from fiscal 2024.

Net Sales. Net sales for fiscal 2025 increased $5.2 billion, or 3.2%, to $164.7 billion. The increase in net sales for fiscal 2025 was primarily driven by SRS, which was acquired on June 18, 2024, and GMS, which was acquired on September 4, 2025. In aggregate, these acquisitions contributed approximately $6.3 billion of incremental net sales during fiscal 2025. Net sales also increased due to sales from new stores and the impact of a positive comparable sales environment. These increases were partially offset by the additional week in fiscal 2024 which contributed approximately $2.5 billion in net sales in fiscal 2024.

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Online sales represented 15.9% of net sales during fiscal 2025 and increased by 8.7% compared to fiscal 2024. Calculated on a comparable week basis relative to fiscal 2024, online sales increased by 10.4%. Online sales consist of sales of products generated through websites and mobile applications and does not include results from HD Supply or SRS (including GMS).

A stronger U.S. dollar compared to fiscal 2024 negatively impacted net sales by $307 million in fiscal 2025.

Comparable Sales. Comparable sales is a measure that highlights the performance of our existing locations and websites by measuring the change in net sales for a period over the comparable prior period of equivalent length. Comparable sales includes sales at locations, physical and online, open greater than 52 weeks (including remodels and relocations) and excludes closed stores. Acquisitions are typically included in comparable sales after they have been owned for more than 52 weeks. For our calculation of comparable sales in fiscal 2025, we compare weeks 1 through 52 in fiscal 2025 against weeks 2 through 53 in fiscal 2024. Comparable sales is intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP. The method of calculating comparable sales varies across the retail industry. As a result, our method of calculating comparable sales may not be the same as similarly titled measures reported by other companies.

Total comparable sales increased 0.3% in fiscal 2025, primarily reflecting a 1.4% increase in comparable average ticket, partially offset by a 1.0% decrease in comparable customer transactions compared to fiscal 2024. Our comparable sales results reflect customer engagement with smaller home improvement projects, which was offset by the impact of continued macroeconomic uncertainties and other macroeconomic factors, including a persisting high interest rate environment, that continue to pressure broader home improvement demand.

For fiscal 2025, our Storage & Organization, Electrical, Bath, Plumbing, Indoor Garden, Outdoor Garden, Kitchen & Blinds, Hardware, Power, Building Materials, and Appliances merc

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