Home Depot (NYSE: HD) shares edged up about 1% in volatile pre-market trading on Tuesday after the company reported fiscal second-quarter results that topped Wall Street expectations. The home improvement giant posted net sales of $47.86 billion for the period ended August 2, a 5.7% increase from the same period last year, and comfortably above the $47.27 billion consensus estimate compiled by LSEG. Adjusted earnings came in at $4.92 per share, beating the projected $4.73.
While the headline numbers were solid, the underlying composition of growth tells a more nuanced story. Comparable sales rose 1.7%, but this was driven entirely by a 2.8% increase in the average customer ticket to $92.50. Comparable customer transactions actually declined by 1.0%, marking another quarter of shrinking foot traffic. The previous year saw a 0.4% drop in transactions, so the decline has deepened, even as the average ticket growth accelerated from 1.4% to 2.8%.
For investors, this mix is critical. Beating expectations through higher spending per visit can boost short-term earnings, but it offers little evidence that underlying customer demand is recovering. The metric that matters most for a retailer like Home Depot is traffic, and that remains under pressure amid a sluggish housing market and elevated borrowing costs. The U.S. cash market was closed at the time of publication, so the stock's full reaction will be seen when regular trading begins.
Total sales growth of 5.7% outpaced comparable sales by four percentage points, highlighting the contribution from recent acquisitions and new store openings. However, profitability showed some strain. GAAP operating margin slipped to 14.3% from 14.5% a year ago, while adjusted operating margin declined by ten basis points to 14.7%. Adjusted operating income still grew 4.8%, reflecting the benefit of higher sales volumes.
Management struck a cautiously optimistic tone. CFO Richard McPhail noted that demand was broad-based across the country and that the quarter outperformed internal forecasts. He pointed to continued customer interest in smaller-scale projects such as routine maintenance, painting, and landscaping, which are holding up better than big-ticket renovations that typically require financing. This pattern aligns with the broader housing market, where high mortgage rates and affordability challenges continue to suppress home sales and major remodeling activity.
Home Depot reaffirmed its full-year fiscal 2026 guidance. The company still expects total sales growth of 2.5% to 4.5%, comparable sales growth between flat and 2.0%, and adjusted earnings per share growth of flat to 4.0% from a base of $14.69. Gross margin is projected at about 33.1%, and adjusted operating margin is expected to be in the range of 12.8% to 13.0%. Capital expenditures are slated for about 2.5% of sales.
The guidance incorporates anticipated refunds under the International Emergency Economic Powers Act (IEEPA) tariffs. Home Depot said these refunds are expected to partially offset unexpected expenses related to fuel, energy, and product inputs. While this provides some support to margins, it does not address the underlying demand weakness.
Wall Street remains broadly positive on the stock, though there is some divergence in views. According to MarketBeat, 18 of 32 analysts rate Home Depot a buy, 13 rate it a hold, and one rates it a sell. The average price target stands at $371.71. Recent analyst actions have been mixed: DA Davidson maintained a buy rating with a $377 target in late July, Guggenheim reiterated a buy with a $425 target, while Wolfe Research cut its rating to peer perform and RBC Capital trimmed its price target to $340.
Leadership is another factor to watch. CEO Ted Decker is currently on temporary medical leave, with CFO Richard McPhail and senior executive Ann-Marie Campbell handling his responsibilities. Decker is expected to return within months. This interim arrangement is being tested during a critical earnings season.
Risks remain. Inventory levels are up 8.1% year-over-year, outpacing sales growth, which could lead to markdowns if demand softens further. Margins have also tightened, reducing the company's ability to absorb higher input costs or a slowdown in ticket growth. The next data point comes on Wednesday when Lowe's (NYSE: LOW) reports its quarterly results. Its transaction trends will indicate whether Home Depot's ticket-driven growth is a company-specific phenomenon or a broader industry trend.
