Home Depot, Inc. 2027 Q2 Earnings Call

Please go ahead. Thank you, Christine, and good morning, everyone.

Welcome to Home 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, and 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 includes forward-looking statements under the Federal Securities laws, 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 a 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, Isabelle, 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. Anne 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 comps in the 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 continued 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-Marie.

Thanks, 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 our store 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 into our associate experience through technology-enabled tools, makes it easier than ever for associates to serve customers. 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 our aisles 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 parcel products, over 65% of our deliveries are same day or next day. We're continuing to get faster. In fact, this month, we launched Express Delivery nationwide with delivery on tens of thousands of products in 3 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. We are winning with the pros. Pro positive comp 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 lock quantities, delivery, sales teams, and specialized services. There's 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, our 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 smaller repair and maintenance projects. 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, 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. 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 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. 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 is storage, 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. 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.