Home Depot’s Tariff Refund Never Made It To The Guide
A one-off tariff refund is expected to be consumed by cost inflation the company had not planned for, which is why a quarter that beat on earnings left the full-year outlook untouched.
Home Depot (HD) reported its second quarter of fiscal 2026 before the market opened on August 18, and the shares finished the day of the report down 0.1% while the S&P 500 fell 0.7%. Adjusted earnings of $4.92 a share beat the $4.73 consensus, and sales grew 5.7% to $47.9 billion. The number that explains the quarter is neither of those: a $685 million tariff refund benefit to cost of goods sold.
Image by Steve Buissinne from Pixabay
The Refund Paid For Costs That Were Never In The Plan
The refund was worth about 145 basis points of gross margin. Management says roughly 60 of those points went straight to unplanned fuel, energy, and other product input costs, leaving a net benefit of about 85 basis points. A separate 60 basis points of drag came from acquisitions absent from the books a year earlier, and the gross margin still ended up about 25 basis points better year over year. And yet management reaffirmed the fiscal 2026 guide rather than raising it, holding comparable sales at flat to 2% and adjusted diluted earnings per share growth at flat to 4%, because the unplanned costs are expected to consume the refund across the full year. By management’s own account, without the refund the quarter’s margin gain would not have held.
The Middle Of The Store Did The Work
Comparable sales rose 1.7%, with 13 of 16 merchandising departments positive, and management says only 3 of the top 20 businesses driving the quarter were seasonal, so the breadth is not a weather story. Portable power tools had a record sales quarter. SRS, the acquired business whose full catalog Home Depot’s Pro teams can now sell from, comped above the company average in the quarter. Online sales grew 11%, a fifth straight quarter of double-digit growth, and management points to speed: delivery lead times on big and bulky products in the U.S. are down roughly 45% over the past 18 months, and Express Delivery, promising three hours or less on tens of thousands of products, went nationwide in August. Growth that keeps broadening across departments and channels is the kind of durability the Trefis High Quality Portfolio favors in its holdings.
The Case Rests On Share Gain, Not On Housing
The quarter does not change the reason to own Home Depot so much as narrow it. What is left is the share gain management says it took in a difficult environment, with Pro posting a positive comp and strong performance across every cohort, set against housing turnover that has sat at historical lows for four years with no sign of an inflection. The limit is traffic: comparable average ticket rose 2.8% while comparable transactions fell 1%, so customers are spending more per visit, not making more visits.
Management agreed with the arithmetic put to it, that holding the ticket gain and adding slightly better traffic would put the comp at or above the top of the guided range, and still called the guidance prudent given the volatility. Options are not priced for a big move from here: implied volatility of 26% sits near the middle of its own trailing one-year range.
A Retailer Taking Share Is Still A Single Holding
Home Depot can keep taking share in a frozen housing market and still go nowhere, because the size of the prize is set by a cycle no retailer controls. Owning that one dependence is a different thing from owning a rules-based set of quality businesses like the Trefis High Quality Portfolio. That portfolio has a track record of outpacing the three major indices – the S&P 500, S&P Mid-cap, and Russell 2000.