Executive Summary

Q2 2026: Net sales $45.28B (+4.9% y/y), comps +1.0% (+1.4% U.S.); GAAP EPS $4.58 (-0.4% y/y), adjusted EPS $4.68 (+0.2% y/y). Management described performance as “the strongest we've seen in over two years” with broad-based category strength and share gains .
Margins in line to slightly softer: gross margin 33.4% (flat vs guide), operating margin 14.5% (adj. 14.8%) as opex delevered ~65 bps; FX was a ~40 bps headwind to comps .
Guidance maintained for FY2025 (52-week year): sales ~+2.8%, comps ~+1.0%, GM ~33.4%, OM ~13.0% (adj. 13.4%), tax ~24.5%, net interest ~$2.2B, EPS down ~3% (adj. ~2%), capex ~2.5% of sales .
Versus S&P Global consensus: revenue was slightly below (~$45.31B est. vs $45.28B actual) and Primary EPS essentially in line/slightly below (4.6945 est. vs 4.68 actual). No change to annual guide is the key stock narrative; breadth of improvement and Pro-ecosystem execution remain medium-term positives, while large projects still lag [Values retrieved from S&P Global].*

What Went Well and What Went Wrong

What Went Well
- Broad-based growth: 12 of 16 departments posted positive comps; big-ticket transactions >$1,000 rose +2.6% y/y; online comp +~12% .
- Faster delivery driving spend: HD achieved the fastest same-/next-day delivery speeds in company history, with customers using faster delivery showing a double-digit lift in spend .
- Pro ecosystem momentum: SRS performance exceeded expectations; trade credit rollout is driving double-digit spend lifts among enrolled pros; management believes they are taking share across roofing, pool, landscape and paint .
What Went Wrong
- Margin pressure: operating margin fell to 14.5% (from 15.1% y/y); adjusted OM 14.8% (from 15.3% y/y) due to opex deleverage and intangible amortization .
- Large discretionary/remodel projects remain soft amid higher-rate environment; engagement remains skewed to smaller projects .
- FX headwinds and inventory turns: FX reduced total-company comps by ~40 bps; inventory turns declined to 4.6x (from 4.9x) as inventories rose to $24.8B .

Financial Results

Financial summary vs prior year and prior quarter:

Metric	Q2 2025	Q1 2026	Q2 2026
Net Sales ($USD Billions)	$43.18	$39.86	$45.28
Comparable Sales (%)	(3.3%)	(0.3%)	1.0%
Diluted EPS (GAAP, $)	$4.60	$3.45	$4.58
Adjusted Diluted EPS (Non-GAAP, $)	$4.67	$3.56	$4.68
Gross Margin (%)	—	33.8%	33.4%
Operating Margin (%)	15.1%	12.9%	14.5%
Adjusted Operating Margin (%)	15.3%	13.2%	14.8%

Versus S&P Global consensus (Q2 2026):

Metric	Consensus	Actual
Revenue ($USD Billions)	$45.31*	$45.28
Primary EPS (adj., $)	$4.6945*	$4.68

*Values retrieved from S&P Global.

KPIs and Operating Metrics (Q2 2026 vs prior year):

KPI	Q2 2025	Q2 2026
Comp Transactions (%)	(2.2%)	(0.4%)
Comp Average Ticket (%)	(1.3%)	1.4%
Customer Transactions (mm)	451.0	446.8
Average Ticket ($)	$88.90	$90.01
Online Comp Sales Growth (%)	—	~12%
Big-Ticket (> $1,000) Comp (%)	—	2.6%
Monthly Comp Cadence (Total Co.)	—	May: (0.3%), Jun: 0.0%, Jul: +3.1%

Balance sheet/cash flow (point-in-time/TTM highlights):

Merchandise inventories: $24.84B; inventory turns 4.6x .
ROIC (TTM): 27.2% (vs 31.9% y/y) .
Stores: 2,353 at quarter-end; 3 opened in Q2 .

Non-GAAP and adjustments:

Intangible amortization: $139mm pretax in Q2; added ~$0.14 to adjusted EPS reconciliation; adjusted OM excludes ~40 bps amortization impact .

Guidance Changes

Guidance was reaffirmed versus Q1 2026; no changes in Q2 2026.

Metric	Period	Previous Guidance (Q1 2026)	Current Guidance (Q2 2026)	Change
Total Sales Growth	FY2025 (52 wks)	~2.8%	~2.8%	Maintained
Comparable Sales Growth	FY2025 (52-wk comp)	~1.0%	~1.0%	Maintained
New Stores	FY2025	~13	~13	Maintained
Gross Margin	FY2025	~33.4%	~33.4%	Maintained
Operating Margin	FY2025	~13.0%	~13.0%	Maintained
Adjusted Operating Margin	FY2025	~13.4% (excludes ~40 bps amort.)	~13.4% (excludes ~40 bps amort.)	Maintained
Effective Tax Rate	FY2025	~24.5%	~24.5%	Maintained
Net Interest Expense	FY2025	~$2.2B	~$2.2B	Maintained
Diluted EPS	FY2025	~-3% vs $14.91 FY2024	~-3% vs $14.91 FY2024	Maintained
Adjusted Diluted EPS	FY2025	~-2% vs $15.24 FY2024	~-2% vs $15.24 FY2024	Maintained
Capex	FY2025	~2.5% of sales	~2.5% of sales	Maintained

Dividend/capital allocation update: Declared quarterly dividend of $2.30 on Aug 21 (154th consecutive quarter) .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 2026)	Current Period (Q2 2026)	Trend
Pro ecosystem (SRS, trade credit, delivery)	SRS outperforming; trade credit built by SRS; 17-market flatbed network; building order mgmt; on-time/complete improving	SRS continues to exceed expectations; cross-sell synergies; several thousand pros on trade credit with double-digit spend lift; order mgmt enhancements; share gains	Improving
Delivery speed & omnichannel	Investing in DFCs; speed drives conversion; “Magic Apron” AI tool improves online conversion	Fastest same-/next-day speeds in HD history; faster delivery correlates with double-digit lift in spend; online comp +~12%	Improving
Large projects/macro	Larger financed projects pressured by rates; demand focused on smaller projects	Larger discretionary projects still soft; mgmt cites economic uncertainty and rates; underlying demand improved sequentially	Mixed
Tariffs/pricing/sourcing	>50% purchases US-sourced; diversified supply chains; expect no single country >10% in 12 months; maintain pricing portfolio	Less promotional activity in smaller garden categories to offset tariff pressure; maintain EDLP and price leadership	Stable/managed
FX	Q1: FX ~70 bps comp headwind	Q2: FX ~40 bps comp headwind; outlook suggests potential tailwind on current rates	Improving
Category breadth	6/16 depts positive in Q1	12/16 depts positive; breadth best in >2 years	Improving
GMS acquisition	Agreement announced 6/30; strategic adjacency	Rationale: adjacencies (drywall/ceilings) complement SRS; network expands to >1,200 locations; integration under SRS platform	Strategic expansion

Management Commentary

“Our second quarter results were in line with our expectations... performance across the business was the strongest we've seen in over two years... we continue to grow market share.” — Ted Decker, CEO .
“We now have the fastest delivery speeds across the greatest number of products in company history... customers who utilize our faster delivery options [show] a double-digit lift in spend.” — Ann‑Marie Campbell, SEVP .
“Operating margin for the second quarter was 14.5%... adjusted operating margin was 14.8%... FX negatively impacted total company comps by ~40 bps.” — Richard McPhail, CFO .
“Big-ticket comp transactions... were +2.6%... continued to see softer engagement in larger discretionary projects where customers typically use financing.” — Billy Bastek, EVP Merchandising .
On GMS: “Drywall and ceiling are adjacent verticals... asset light, similar margins... will be a seamless integration under SRS... 1,200 additional distribution branches.” — Ted Decker .

Q&A Highlights

Demand cadence: July strength partly weather-aided; guidance assumes slight improvement in H2; momentum continued into first two weeks of Q3 .
Rates/tax: Lower mortgage/HELOC rates would help larger projects; recent tax package provides cash tax benefits (bonus depreciation, R&D) and potential consumer tailwinds .
Tariffs/promotions: Pulled back promotions in outdoor garden to offset tariffs; maintain EDLP and price leadership, not broad-based price increases .
FX outlook: H1 ~55 bps headwind to total comps could flip to ~25 bps tailwind at current rates .
GMS rationale: Adjacency to SRS verticals, buy-vs-build for differentiated capabilities, cultural/operating model fit; expected cross-sell and network leverage .

Estimates Context

Q2 2026 vs S&P Global: Revenue $45.31B* est. vs $45.28B actual (slight miss); Primary EPS $4.6945* est. vs $4.68 actual (essentially in line/slight miss). Prior quarter (Q1 2026) revenue beat, EPS slightly below; Q3 2026 revenue beat, EPS below. Expect modest downward EPS revision bias near-term given opex deleverage and large-project softness, though breadth of comp strength and Pro initiatives support medium-term estimate stability [Values retrieved from S&P Global].*

Key Takeaways for Investors

Breadth improved materially (12/16 departments) with sequential acceleration into July; share gains likely continued, but large financed projects remain a drag until rates ease and uncertainty abates .
Margins are consistent with plan: GM tracking to ~33.4% for the year; OM mix impact from SRS and opex deleverage persists; non‑GAAP adjustments (intangible amortization) are ~40 bps to OM and ~$0.40 after-tax to EPS for FY25 .
Guide reiterated; no change in Q2. The steadiness itself is the catalyst: execution quality reduces downside risk while preserving upside if macro improves (rates, storms, large projects) .
Pro-ecosystem remains the core structural thesis: trade credit adoption, order management, and delivery reliability are driving spend lifts; GMS expands addressable profit pools and strengthens distribution density .
Near-term trading setup: prints “in line,” slight consensus underperformance on EPS/revenue likely limits upside; watch early-Q3 comp cadence (noted positive) and any signs of large-project thaw as rate expectations evolve .
Risk checks: FX sensitivity, promotional posture in seasonal/garden amid tariffs, inventory turns, and hurricane season variability can swing quarterly comps and opex leverage .
Capital returns intact: dividend maintained ($2.30/quarter); balance sheet supports ongoing capex (~2.5% sales) and ecosystem investments .

Notes:

Non-GAAP reconciliations and definitions provided by the company; adjusted OM and EPS exclude acquired intangible amortization .
All estimate figures marked with an asterisk (*) are Values retrieved from S&P Global.

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