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

We reported net sales of $41.8 billion in the first quarter of fiscal 2026. Net earnings were $3.3 billion, or $3.30 per diluted share.

During the first three months of fiscal 2026, we generated $6.0 billion of cash flow from operations. This cash flow, together with cash on hand, was used to fund $2.3 billion in cash dividends, repay $1.4 billion of long-term debt, and repay $1.0 billion of net commercial paper borrowings. In addition, we funded $844 million in capital expenditures.

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

Our inventory turnover ratio was 4.2 times at the end of the first quarter of fiscal 2026, compared to 4.3 times at the end of the first quarter of fiscal 2025. The decrease in our inventory turnover ratio was primarily driven by higher average inventory levels during the first three months of fiscal 2026.

Our ROIC for the trailing twelve-month period was 25.4% at the end of the first quarter of fiscal 2026 and 31.3% at the end of the first quarter of fiscal 2025. 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 the first three months of fiscal 2026, we opened one new store in the U.S. and one new store in Mexico, resulting in a total store count of 2,361 at May 3, 2026. A total of 325 stores, or 13.8%, were located in Canada and Mexico. At the end of the first quarter of fiscal 2026, we also operated over 1,280 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 with respect to tariffs and other trade policy matters closely, including impacts from the U.S. Supreme Court decision that struck down tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) and other litigation, as well as the implementation of additional tariffs. We had not received any IEEPA tariff refunds pursuant to the U.S. Supreme Court ruling or recorded any such refunds in our financial statements as of May 3, 2026. Although an immaterial amount of these IEEPA tariff refunds has been received since the end of the first quarter of fiscal 2026, the timing of any further refunds and the total amount ultimately received or recorded remains uncertain.

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 first quarter of fiscal 2026 were $41.8 billion, an increase of 4.8% from $39.9 billion for the first quarter of fiscal 2025. The increase in net sales for the first quarter of fiscal 2026 was primarily driven by sales from GMS, which was acquired on September 4, 2025 and contributed $1.3 billion of net sales during the first quarter of fiscal 2026. Net sales also increased due to the impact of a positive comparable sales environment and sales from new stores and branches.

Online sales represented 16.5% of net sales during the first quarter of fiscal 2026 and increased by 10.5% compared to the first quarter of fiscal 2025. Online sales consist of sales of products generated through websites and mobile applications and does not include results from HD Supply or SRS.

A weaker U.S. dollar compared to the first quarter of fiscal 2025 positively impacted net sales by $220 million during the first quarter of fiscal 2026.

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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 first quarter of fiscal 2026 increased 0.6%, primarily reflecting a 2.2% increase in comparable average ticket, partially offset by a 1.3% decrease in comparable customer transactions compared to the first quarter of fiscal 2025. Foreign exchange rates positively impacted comparable sales by approximately 55 basis points for the first quarter of fiscal 2026. Our comparable sales results reflect customer engagement with smaller home improvement projects, despite the impact of consumer uncertainty and housing affordability pressure on home improvement demand.

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

Gross Profit

Gross profit for the first quarter of fiscal 2026 increased 2.4% to $13.8 billion from $13.5 billion for the first quarter of fiscal 2025. Gross profit as a percentage of net sales, or gross profit margin, was 33.0% for the first quarter of fiscal 2026 compared to 33.8% for the first quarter of fiscal 2025, and primarily reflects 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 first quarter of fiscal 2026 increased $429 million, or 5.7%, to $8.0 billion from $7.5 billion for the first quarter of fiscal 2025. As a percentage of net sales, SG&A was 19.1% for the first quarter of fiscal 2026 compared to 18.9% for the first quarter of fiscal 2025, primarily reflecting higher operating costs relative to comparable sales performance.

Depreciation and Amortization. Depreciation and amortization for the first quarter of fiscal 2026 increased $45 million, or 5.7%, to $841 million from $796 million for the first quarter of fiscal 2025. As a percentage of net sales, depreciation and amortization was 2.0% for both the first quarter of fiscal 2026 and 2025.

Interest and Other, net

Interest and other, net was $604 million for the first quarter of fiscal 2026 compared to $591 million for the first quarter of fiscal 2025. As a percentage of net sales, interest and other, net was 1.4% for the first quarter of fiscal 2026 compared to 1.5% for the first quarter of fiscal 2025.

Provision for Income Taxes

Our combined effective income tax rate was 24.9% for the first quarter of fiscal 2026 compared to 24.4% for the first quarter of fiscal 2025.

Diluted Earnings per Share

Diluted earnings per share were $3.30 for the first quarter of fiscal 2026 compared to $3.45 for the first quarter of fiscal 2025. The decrease in diluted earnings per share was primarily driven by lower net earnings during the first quarter of fiscal 2026.

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NON-GAAP FINANCIAL MEASURES

To provide clarity on our operating performance, we supplement our reporting with certain non-GAAP financial measures. However, this supplemental information should not be considered in isolation or as a substitute for the related GAAP measures. Non-GAAP financial measures presented herein may differ from similar measures used by other companies.

Return on Invested Capital

We believe ROIC is meaningful for management, investors and ratings agencies because it measures how effectively we deploy our capital base. ROIC is a non-GAAP profitability measure, not a measure of financial performance under GAAP. We define ROIC as NOPAT, a non-GAAP financial measure, for the most recent twelve-month period, divided by average debt and equity. We define average debt and equity as the average of beginning and ending long-term debt (including current installments) and equity for the most recent twelve-month period.

The following table presents the calculation of ROIC, together with a reconciliation of NOPAT

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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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