Home Depot's latest earnings report tells a familiar story for retailers these days: customers are coming in less often, but when they do, they're spending more. The home improvement giant beat Wall Street's estimates for both revenue and adjusted profit in its fiscal second quarter, helped by steady demand for smaller projects and a higher average ticket.
Shares initially popped on the news, but the enthusiasm faded quickly, and the stock was trading lower by Tuesday afternoon.
Let's get to the numbers. Sales came in at $47.861 billion, up 5.7% from a year ago and ahead of the $47.271 billion analysts were looking for. Adjusted diluted earnings rose 5.1% to $4.92 per share, beating the $4.73 estimate. On a GAAP basis, earnings were $4.79 per share, up 4.6%, while net earnings climbed 4.7% to $4.766 billion.
Fewer Trips, Bigger Carts
Comparable sales rose 1.7% overall, with U.S. comps up 1.3%. But here's the interesting part: comparable customer transactions fell 1%, while the comparable average ticket jumped 2.8%. Total transactions slipped 0.8% to 443.2 million, and the average ticket was $92.50.
So what's driving this? CFO Richard McPhail said the quarter exceeded expectations, with "broad based demand across the business as customers continued to engage in smaller projects." Senior Executive Vice President Ann-Marie Campbell credited the company's investments, customer service, and strong execution in a "dynamic operating environment."
Margins: A Slight Squeeze
Operating income rose 4.3% to $6.839 billion, but the GAAP operating margin narrowed to 14.3% from 14.5% a year earlier. Adjusted operating income was up 4.8% to $7.017 billion, with the adjusted margin slipping to 14.7% from 14.8%. The non-GAAP figures exclude amortization of acquired intangible assets and related tax effects.
Cash and Debt
Cash flow is looking healthier. Operating cash flow for the first six months jumped to $11.422 billion from $8.968 billion a year earlier. Capital expenditures totaled $1.724 billion. The company ended the period with $2.085 billion in cash, but it also carries a fair amount of debt: $4.248 billion in short-term debt, $4.697 billion in current installments of long-term debt, and $43.951 billion in long-term debt excluding current installments.
The Tariff Refund Windfall
One notable item in the quarter: Home Depot received $730 million in tariff refunds, an executive said on the earnings call. These refunds were tied to tariffs imposed under the International Emergency Economic Powers Act (IEEPA). The executive noted that the refunds reduced cost of goods sold by $685 million during the quarter.
Guidance: Holding Steady
For the full fiscal year, Home Depot reaffirmed its outlook: total sales growth of about 2.5% to 4.5%, comparable sales growth from roughly flat to 2%, and about 15 new stores. The company expects GAAP earnings of $14.23 to $14.80 per share, compared with the $14.48 analyst estimate. Adjusted earnings guidance of $14.69 to $15.28 per share brackets the $14.96 consensus. Sales guidance of $168.8 billion to $172.093 billion also brackets the $170.958 billion estimate.
The company continues to expect an adjusted operating margin of about 12.8% to 13%, excluding an estimated 40-basis-point impact from acquired intangible asset amortization. Adjusted earnings guidance also excludes an expected after-tax impact of about 50 cents per share. Home Depot said its guidance includes expected IEEPA tariff refunds that should partially offset unplanned fuel, energy, and other product input costs.
Express Delivery Goes National
In a separate announcement, Home Depot rolled out Express Delivery nationwide. The service promises delivery in three hours or less for a small flat fee, with no subscription or membership required. It's aimed at both professional and do-it-yourself customers who need supplies fast.
At the time of publication Tuesday, Home Depot shares were down 0.40% at $336.53.
