Two children killed, 17 hurt following shooting at Minneapolis Catholic school, heavy rain brings flood threats and increased fire risks as lightning storms pick up out West, 14 arrested in California in largest Home Depot theft ring ever. ...

Group 1 - The article initiates coverage on Lowe's Companies (NYSE: LOW) and Home Depot (NYSE: HD), highlighting their significance in the U.S. home improvement market [1] - The retail sector has been notably impacted by tariffs, affecting pricing and consumer behavior [1] Group 2 - The author emphasizes a contrarian investment approach, leveraging extensive industry experience to identify potential investment opportunities [1]

[Commonly Used or Defined Terms](index=3&type=section&id=Commonly%20Used%20or%20Defined%20Terms) This section provides definitions for key terms used throughout the financial report [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section outlines the nature and inherent risks of forward-looking statements within the document - The document contains forward-looking statements based on current information, assumptions, expectations, and projections about future events, using terms like 'may,' 'will,' 'anticipate,' 'intend,' 'estimate,' 'project,' 'plan,' 'believe,' 'expect,' 'target,' 'potential,' 'commit,' and 'forecast'[11](index=11&type=chunk) - These statements cover various aspects including demand for products/services, net sales growth, comparable sales, competition, strategic initiatives, economic conditions, housing market, credit markets, tariffs, supply chain, labor costs, disruptive events (natural disasters, cybersecurity, geopolitical conflicts), sustainability, share repurchases, earnings, dividends, capital allocation, interest rates, foreign currency, inflation/deflation, debt issuance, litigation, international operations, accounting effects, regulatory changes, store operations, financial outlook, and the impact of acquisitions (GMS, SRS)[12](index=12&type=chunk) - Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many beyond the company's control, which could cause actual results to differ materially from expectations. Readers are advised to review risk factors in the 2024 Form 10-K and subsequent SEC filings[13](index=13&type=chunk) [PART I – FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This part presents the company's comprehensive financial data, including statements, notes, and management's analysis [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements.) This section presents the unaudited consolidated financial statements, including balance sheets, income, equity, and cash flow, with detailed notes [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) This section details the company's financial position, presenting assets, liabilities, and stockholders' equity at specific dates | in millions | August 3, 2025 | February 2, 2025 | | :-------------------------- | :------------- | :--------------- | | **Assets** | | | | Cash and cash equivalents | $2,804 | $1,659 | | Receivables, net | $5,878 | $4,903 | | Merchandise inventories | $24,843 | $23,451 | | Total current assets | $35,391 | $31,683 | | Net property and equipment | $26,896 | $26,702 | | Goodwill | $19,619 | $19,475 | | Total assets | $100,049 | $96,119 | | **Liabilities** | | | | Short-term debt | $— | $316 | | Accounts payable | $13,086 | $11,938 | | Total current liabilities | $30,846 | $28,661 | | Long-term debt | $45,917 | $48,485 | | Total liabilities | $89,384 | $89,479 | | **Stockholders' Equity** | | | | Total stockholders' equity | $10,665 | $6,640 | - Total assets increased by **$3,930 million (4.1%)** from February 2, 2025, to August 3, 2025, primarily driven by increases in cash and cash equivalents, receivables, and merchandise inventories[17](index=17&type=chunk) - Total stockholders' equity increased significantly by **$4,025 million (60.6%)** from February 2, 2025, to August 3, 2025[17](index=17&type=chunk) [Consolidated Statements of Earnings](index=6&type=section&id=Consolidated%20Statements%20of%20Earnings) This section outlines the company's financial performance over periods, including net sales, gross profit, and net earnings | in millions, except per share data | Three Months Ended August 3, 2025 | Three Months Ended July 28, 2024 | Six Months Ended August 3, 2025 | Six Months Ended July 28, 2024 | | :--------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------ | :----------------------------- | | Net sales | $45,277 | $43,175 | $85,133 | $79,593 | | Gross profit | $15,125 | $14,416 | $28,584 | $26,849 | | Operating income | $6,555 | $6,534 | $11,688 | $11,613 | | Net earnings | $4,551 | $4,561 | $7,984 | $8,161 | | Diluted earnings per share | $4.58 | $4.60 | $8.03 | $8.23 | - Net sales for the three months ended August 3, 2025, increased by **$2,102 million (4.9%)** compared to the same period in the prior year[20](index=20&type=chunk) - Diluted EPS decreased slightly by **$0.02 (0.4%)** for the three months ended August 3, 2025, and by **$0.20 (2.4%)** for the six months ended August 3, 2025, compared to the respective prior-year periods[20](index=20&type=chunk) [Consolidated Statements of Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents net earnings and other comprehensive income components, reflecting total non-owner changes in equity | in millions | Three Months Ended August 3, 2025 | Three Months Ended July 28, 2024 | Six Months Ended August 3, 2025 | Six Months Ended July 28, 2024 | | :-------------------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------ | :----------------------------- | | Net earnings | $4,551 | $4,561 | $7,984 | $8,161 | | Foreign currency translation adjustments | $167 | $(249) | $289 | $(259) | | Cash flow hedges | $1 | $(60) | $5 | $(51) | | Total other comprehensive income (loss) | $168 | $(309) | $294 | $(310) | | Comprehensive income | $4,719 | $4,252 | $8,278 | $7,851 | - Comprehensive income increased by **$467 million (11.0%)** for the three months ended August 3, 2025, and by **$427 million (5.4%)** for the six months ended August 3, 2025, primarily due to positive foreign currency translation adjustments compared to losses in the prior year[22](index=22&type=chunk) [Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in stockholders' equity, including common stock, retained earnings, and treasury stock | in millions | August 3, 2025 | July 28, 2024 | | :-------------------------------- | :------------- | :------------ | | Common Stock: | | | | Balance at end of period | $90 | $90 | | Paid-in Capital: | | | | Balance at end of period | $14,438 | $13,731 | | Retained Earnings: | | | | Balance at end of period | $92,943 | $87,357 | | Accumulated Other Comprehensive Loss: | | | | Balance at end of period | $(835) | $(787) | | Treasury Stock: | | | | Balance at end of period | $(95,971) | $(95,971) | | Total stockholders' equity | $10,665 | $4,420 | - Total stockholders' equity significantly increased to **$10,665 million** as of August 3, 2025, from **$4,420 million** as of July 28, 2024, driven by an increase in retained earnings and paid-in capital[25](index=25&type=chunk) - Cash dividends paid for the six months ended August 3, 2025, totaled **$4,574 million**, an increase from **$4,460 million** in the prior year[25](index=25&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section reports cash inflows and outflows from operating, investing, and financing activities over periods | in millions | Six Months Ended August 3, 2025 | Six Months Ended July 28, 2024 | | :---------------------------------------- | :------------------------------ | :----------------------------- | | Net cash provided by operating activities | $8,968 | $10,906 | | Net cash used in investing activities | $(1,892) | $(19,098) | | Net cash (used in) provided by financing activities | $(5,980) | $6,113 | | Change in cash and cash equivalents | $1,096 | $(2,079) | | Cash and cash equivalents at end of period | $2,804 | $1,613 | - Net cash provided by operating activities decreased by **$1,938 million (17.8%)** in the first six months of fiscal 2025 compared to the prior year, primarily due to changes in working capital[28](index=28&type=chunk)[140](index=140&type=chunk) - Net cash used in investing activities significantly decreased by **$17,206 million (90.1%)** in the first six months of fiscal 2025, mainly due to lower payments for business acquisitions compared to the SRS acquisition in fiscal 2024[28](index=28&type=chunk)[141](index=141&type=chunk) - The company shifted from net cash provided by financing activities in the prior year to net cash used in financing activities in the first six months of fiscal 2025, reflecting cash dividends paid and debt repayments, contrasting with prior year's debt issuances for acquisitions[28](index=28&type=chunk)[142](index=142&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements [Note 1. Summary of Significant Accounting Policies](index=10&type=section&id=Note%201.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods used in preparing the financial statements - The financial statements are prepared in accordance with Form 10-Q and GAAP, with no significant changes to accounting policies during the six months ended August 3, 2025[30](index=30&type=chunk) | in millions | August 3, 2025 | February 2, 2025 | | :---------------- | :------------- | :--------------- | | Card receivables | $1,287 | $1,019 | | Rebate receivables| $1,485 | $1,404 | | Customer receivables| $2,521 | $1,896 | | Other receivables | $585 | $584 | | Receivables, net | $5,878 | $4,903 | - The company operates a supplier finance program with outstanding payment obligations of **$598 million** at both August 3, 2025, and February 2, 2025, recorded within accounts payable[32](index=32&type=chunk) - The recently signed One Big Beautiful Bill Act (OBBBA) is not expected to materially impact the estimated fiscal 2025 effective tax rate but is anticipated to reduce fiscal 2025 cash tax payments[33](index=33&type=chunk) [Note 2. Segment Reporting and Net Sales](index=11&type=section&id=Note%202.%20Segment%20Reporting%20and%20Net%20Sales) This note details the company's operating segments and provides a breakdown of net sales by segment and geography - The company operates a 'Primary segment' encompassing retail operations in the U.S., Canada, and Mexico, selling building materials, home improvement, lawn and garden, décor, and facilities maintenance products, along with installation and rental services[37](index=37&type=chunk) - The 'Other' segment includes results from SRS Distribution Inc., acquired in June 2024, which is a specialty trade distribution company for roofers, landscapers, and pool contractors, with roofing and related products accounting for approximately **62-65%** of its net sales[38](index=38&type=chunk)[39](index=39&type=chunk) | in millions | Three Months Ended August 3, 2025 | Three Months Ended July 28, 2024 | Six Months Ended August 3, 2025 | Six Months Ended July 28, 2024 | | :-------------------------- | :-------------------------------- | :------------------------------- | :------------------------------ | :----------------------------- | | Primary segment net sales | $42,157 | $41,901 | $79,444 | $78,319 | | Other net sales | $3,120 | $1,274 | $5,689 | $1,274 | | Consolidated Net sales | $45,277 | $43,175 | $85,133 | $79,593 | | Primary segment operating income | $6,354 | $6,462 | $11,400 | $11,541 | | Other operating income | $201 | $72 | $288 | $72 | | in millions | Three Months Ended August 3, 2025 | Three Months Ended July 28, 2024 | Six Months Ended August 3, 2025 | Six Months Ended July 28, 2024 | | :-------------------------- | :-------------------------------- | :------------------------------- | :------------------------------ | :----------------------------- | | Net sales – in the U.S. | $41,729 | $39,513 | $78,953 | $73,082 | | Net sales – outside the U.S.| $3,548 | $3,662 | $6,180 | $6,511 | | Net sales – products | $43,725 | $41,605 | $82,237 | $76,683 | | Net sales – services | $1,552 | $1,570 | $2,896 | $2,910 | - Deferred revenue for products and services was **$1.6 billion** as of August 3, 2025, and for unredeemed gift cards was **$1.0 billion**[46](index=46&type=chunk)[47](index=47&type=chunk) [Note 3. Property and Leases](index=14&type=section&id=Note%203.%20Property%20and%20Leases) This note provides information on the company's property, plant, equipment, and lease assets and liabilities - Net property and equipment included accumulated depreciation and finance lease amortization of **$30.6 billion** as of August 3, 2025, up from **$29.1 billion** as of February 2, 2025[49](index=49&type=chunk) | in millions | August 3, 2025 | February 2, 2025 | | :------------------------------ | :------------- | :--------------- | | Operating lease right-of-use assets | $8,662 | $8,592 | | Finance lease assets | $2,632 | $2,638 | | Total lease assets | $11,294 | $11,230 | | Current operating lease liabilities | $1,336 | $1,274 | | Long-term operating lease liabilities | $7,668 | $7,633 | | Total lease liabilities | $12,018 | $11,928 | - Lease assets obtained in exchange for new operating lease liabilities were **$793 million** for the six months ended August 3, 2025, an increase from **$670 million** in the prior year[51](index=51&type=chunk) [Note 4. Goodwill and Intangible Assets](index=14&type=section&id=Note%204.%20Goodwill%20and%20Intangible%20Assets) This note details the carrying amounts and changes in goodwill and other intangible assets | in millions | Primary Segment | Other | Consolidated | | :------------------------------ | :-------------- | :---- | :----------- | | Goodwill, balance at February 2, 2025 | $8,450 | $11,025 | $19,475 | | Acquisitions | $62 | $64 | $126 | | Other | $20 | $(2) | $18 | | Goodwill, balance at August 3, 2025 | $8,532 | $11,087 | $19,619 | - Consolidated goodwill increased by **$144 million** to **$19,619 million** as of August 3, 2025, primarily due to immaterial acquisitions and foreign currency translation[52](index=52&type=chunk)[53](index=53&type=chunk) | in millions | August 3, 2025 Net Carrying Amount | February 2, 2025 Net Carrying Amount | | :------------------------------ | :--------------------------------- | :----------------------------------- | | Customer relationships | $7,635 | $7,810 | | Trade names (definite-lived) | $486 | $524 | | Trade names (indefinite-lived) | $649 | $649 | | Total Intangible Assets | $8,770 | $8,983 | - Intangible asset amortization expense was **$139 million** for Q2 fiscal 2025 (up from **$90 million** in Q2 fiscal 2024) and **$278 million** for the first six months of fiscal 2025 (up from **$142 million** in the prior year), reflecting increased amortization related to SRS[55](index=55&type=chunk) [Note 5. Debt and Derivative Instruments](index=15&type=section&id=Note%205.%20Debt%20and%20Derivative%20Instruments) This note describes the company's debt obligations and the use of derivative instruments for risk management - The commercial paper program was increased by **$4.0 billion** to **$11.0 billion** in July 2025, supported by **$11.0 billion** in back-up credit facilities, in connection with the anticipated GMS acquisition[59](index=59&type=chunk) - As of August 3, 2025, there were no outstanding borrowings under the commercial paper program or back-up credit facilities, compared to **$316 million** outstanding at February 2, 2025[60](index=60&type=chunk) - The company repaid **$1.0 billion** in senior notes in April 2025[61](index=61&type=chunk) - Interest rate swap agreements with a notional amount of **$5.4 billion** are used as fair value hedges, with fair values totaling **$599 million** at August 3, 2025[63](index=63&type=chunk) [Note 6. Stockholders' Equity](index=16&type=section&id=Note%206.%20Stockholders'%20Equity) This note provides details on the components of stockholders' equity, including share repurchases and dividends | Metric | August 3, 2025 | July 28, 2024 | | :-------------------------- | :------------- | :------------ | | Shares outstanding (millions) | 995 | 993 | | Cash dividends per share ($) | $2.30 | $2.25 | - The Board of Directors approved a **$15.0 billion** share repurchase authorization in August 2023, with approximately **$11.7 billion** remaining available as of August 3, 2025[67](index=67&type=chunk) - Share repurchases were paused in March 2024 and have not resumed as of August 3, 2025[67](index=67&type=chunk) [Note 7. Fair Value Measurements](index=17&type=section&id=Note%207.%20Fair%20Value%20Measurements) This note explains the methodologies and inputs used for fair value measurements of financial instruments - Assets and liabilities measured at fair value on a recurring basis primarily include derivative agreements, which are valued using Level 2 inputs (interest rate forward curves and discount rates)[69](index=69&type=chunk) | in millions | August 3, 2025 Fair Value (Level 2) | February 2, 2025 Fair Value (Level 2) | | :------------------------------ | :---------------------------------- | :------------------------------------ | | Derivative agreements – assets | $— | $— | | Derivative agreements – liabilities | $(601) | $(795) | - The fair value of senior notes was **$46,296 million (Level 1)** compared to a carrying value of **$48,949 million** as of August 3, 2025[71](index=71&type=chunk) [Note 8. Weighted Average Common Shares](index=18&type=section&id=Note%208.%20Weighted%20Average%20Common%20Shares) This note presents the calculation of basic and diluted weighted average common shares outstanding | in millions | Three Months Ended August 3, 2025 | Three Months Ended July 28, 2024 | Six Months Ended August 3, 2025 | Six Months Ended July 28, 2024 | | :-------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------ | :----------------------------- | | Basic weighted average common shares | 992 | 990 | 992 | 989 | | Diluted weighted average common shares | 994 | 992 | 994 | 992 | | Anti-dilutive securities excluded | 1 | 1 | 1 | 1 | [Note 9. Contingencies](index=18&type=section&id=Note%209.%20Contingencies) This note discusses potential future obligations arising from litigation or other uncertain events - Management believes that any litigation arising in the normal course of business is not expected to have a material adverse effect on the company's consolidated financial condition, results of operations, or cash flows[74](index=74&type=chunk) [Note 10. Acquisitions](index=18&type=section&id=Note%2010.%20Acquisitions) This note provides details on recent business acquisitions, including SRS Distribution Inc. and the pending GMS Inc. acquisition - The acquisition of SRS Distribution Inc. for **$18.0 billion** was completed on June 18, 2024, funded by commercial paper borrowings, long-term debt, and cash on hand. The purchase price allocation was finalized in Q1 fiscal 2025[75](index=75&type=chunk) - The company entered into a definitive agreement on June 29, 2025, to acquire GMS Inc. for an expected total equity value of approximately **$4.3 billion** (total enterprise value of **$5.5 billion**), with closing anticipated in the second half of fiscal 2025, funded by cash on hand and commercial paper borrowings[76](index=76&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) This section provides management's perspective on financial condition and operating results, covering performance analysis, liquidity, and critical accounting estimates [Executive Summary](index=19&type=section&id=Executive%20Summary) This summary highlights key financial performance metrics, strategic initiatives, and operational updates for the period | Metric | Q2 Fiscal 2025 | First Six Months Fiscal 2025 | | :---------------------- | :------------- | :--------------------------- | | Net sales (billions) | $45.3 | $85.1 | | Net earnings (billions) | $4.6 | $8.0 | | Diluted EPS ($) | $4.58 | $8.03 | - Three new stores were opened in the U.S. during Q2 fiscal 2025, bringing the total store count to **2,353**[83](index=83&type=chunk) - Cash flow from operations for the first six months of fiscal 2025 was **$9.0 billion**, used to fund **$4.6 billion** in dividends and **$1.7 billion** in capital expenditures[84](index=84&type=chunk) - Return on Invested Capital (ROIC) decreased to **27.2%** at the end of Q2 fiscal 2025 from **31.9%** in Q2 fiscal 2024, primarily due to higher average long-term debt and equity from the SRS acquisition financing[85](index=85&type=chunk) - The pending acquisition of GMS for an expected total enterprise value of approximately **$5.5 billion** is expected to close in the second half of fiscal 2025[86](index=86&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance for the reported periods [Fiscal 2025 and Fiscal 2024 Three Month Comparisons](index=20&type=section&id=FISCAL%202025%20AND%20FISCAL%202024%20THREE%20MONTH%20COMPARISONS) This section compares the company's financial and operational performance for the three-month periods of fiscal 2025 and 2024 | dollars in millions | August 3, 2025 | % of Net Sales | July 28, 2024 | % of Net Sales | | :------------------------ | :------------- | :------------- | :------------ | :------------- | | Net sales | $45,277 | | $43,175 | | | Gross profit | $15,125 | 33.4 % | $14,416 | 33.4 % | | Selling, general and administrative | $7,764 | 17.1 % | $7,144 | 16.5 % | | Depreciation and amortization | $806 | 1.8 % | $738 | 1.7 % | | Operating income | $6,555 | 14.5 % | $6,534 | 15.1 % | | Net earnings | $4,551 | 10.1 % | $4,561 | 10.6 % | | Selected financial and sales data | August 3, 2025 | July 28, 2024 | % Change | | :-------------------------------- | :------------- | :------------ | :------- | | Comparable sales (%) | 1.0 | (3.3) | N/A | | Comparable customer transactions (%) | (0.4) | (2.2) | N/A | | Comparable average ticket (%) | 1.4 | (1.3) | N/A | | Diluted earnings per share ($) | $4.58 | $4.60 | (0.4) | - Net sales increased by **4.9%** to **$45.3 billion**, primarily driven by the SRS acquisition (**$1.8 billion** incremental sales) and positive comparable sales, partially offset by a calendar shift[95](index=95&type=chunk) - Online sales grew by **10.1%** (**11.5%** on a comparable week basis) and represented **15.6%** of net sales[96](index=96&type=chunk) - Comparable sales increased by **1.0%**, reflecting a **1.4%** increase in comparable average ticket and a **0.4%** decrease in comparable customer transactions. This was influenced by smaller home improvement projects and macroeconomic uncertainties[98](index=98&type=chunk) - Gross profit margin remained flat at **33.4%**, benefiting from shrink and supply chain efficiencies, offset by the inclusion of SRS[100](index=100&type=chunk) - SG&A as a percentage of net sales increased to **17.1%** from **16.5%**, mainly due to higher payroll and related costs[102](index=102&type=chunk) - Depreciation and amortization as a percentage of net sales increased to **1.8%** from **1.7%**, primarily due to increased intangible asset amortization from SRS[103](index=103&type=chunk) [Fiscal 2025 and Fiscal 2024 Six Month Comparisons](index=22&type=section&id=FISCAL%202025%20AND%20FISCAL%202024%20SIX%20MONTH%20COMPARISONS) This section compares the company's financial and operational performance for the six-month periods of fiscal 2025 and 2024 | dollars in millions | August 3, 2025 | % of Net Sales | July 28, 2024 | % of Net Sales | | :------------------------ | :------------- | :------------- | :------------ | :------------- | | Net sales | $85,133 | | $79,593 | | | Gross profit | $28,584 | 33.6 % | $26,849 | 33.7 % | | Selling, general and administrative | $15,294 | 18.0 % | $13,811 | 17.4 % | | Depreciation and amortization | $1,602 | 1.9 % | $1,425 | 1.8 % | | Operating income | $11,688 | 13.7 % | $11,613 | 14.6 % | | Net earnings | $7,984 | 9.4 % | $8,161 | 10.3 % | | Selected financial and sales data | August 3, 2025 | July 28, 2024 | % Change | | :-------------------------------- | :------------- | :------------ | :------- | | Comparable sales (%) | 0.4 | (3.1) | N/A | | Comparable customer transactions (%) | (0.5) | (1.9) | N/A | | Comparable average ticket (%) | 0.7 | (1.3) | N/A | | Diluted earnings per share ($) | $8.03 | $8.23 | (2.4) | - Net sales increased by **7.0%** to **$85.1 billion**, primarily due to **$4.4 billion** incremental net sales from SRS and positive comparable sales, also influenced by a calendar shift[111](index=111&type=chunk) - Online sales increased by **10.5%** (**10.0%** on a comparable week basis) and represented **15.6%** of net sales[112](index=112&type=chunk) - Comparable sales increased by **0.4%**, driven by a **0.7%** increase in comparable average ticket, offset by a **0.5%** decrease in comparable customer transactions, reflecting ongoing macroeconomic uncertainties[113](index=113&type=chunk) - Gross profit margin slightly decreased to **33.6%** from **33.7%**, reflecting the inclusion of SRS, partially offset by shrink and supply chain efficiencies[115](index=115&type=chunk) - SG&A as a percentage of net sales increased to **18.0%** from **17.4%**, mainly due to higher payroll costs and the absence of a non-recurring legal benefit recognized in the prior year[117](index=117&type=chunk) - Diluted EPS decreased by **2.4%** to **$8.03**, primarily due to lower net earnings[121](index=121&type=chunk) [Non-GAAP Financial Measures](index=24&type=section&id=NON-GAAP%20FINANCIAL%20MEASURES) This section presents and reconciles non-GAAP financial measures, such as Return on Invested Capital, used by management - Return on Invested Capital (ROIC) is a non-GAAP measure used to assess capital deployment effectiveness, defined as Net Operating Profit After Tax (NOPAT) divided by average debt and equity[123](index=123&type=chunk) | Metric (millions) | Twelve Months Ended August 3, 2025 | Twelve Months Ended July 28, 2024 | | :------------------ | :--------------------------------- | :-------------------------------- | | Net earnings | $14,629 | $14,772 | | Operating income | $21,601 | $21,162 | | NOPAT | $16,412 | $16,118 | | Average debt and equity | $60,305 | $50,534 | | ROIC (%) | 27.2 | 31.9 | - ROIC decreased to **27.2%** for the trailing twelve-month period ended August 3, 2025, from **31.9%** in the prior year, primarily due to higher average debt and equity from the SRS acquisition financing[124](index=124&type=chunk)[85](index=85&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, funding sources, capital allocation, and debt management strategies - As of August 3, 2025, the company had **$2.8 billion** in cash and cash equivalents, with **$1.1 billion** held by foreign subsidiaries[127](index=127&type=chunk) - The company expects current cash, operating cash flow, commercial paper program, and access to debt markets to be sufficient for operating requirements, debt payments, contractual obligations, business investments, dividends, and share repurchases[127](index=127&type=chunk) - Share repurchases were paused in March 2024 due to the SRS acquisition and are not planned to resume in fiscal 2025[128](index=128&type=chunk) - Capital expenditures for the first six months of fiscal 2025 were approximately **$1.7 billion**, with a full fiscal 2025 target of approximately **$4 billion (2.5% of net sales)** for customer experience improvements, Pro customer capabilities, and new stores[130](index=130&type=chunk) - The quarterly cash dividend was increased by **2.2%** to **$2.30 per share** in February 2025, with **$4.6 billion** paid in dividends during the first six months of fiscal 2025[131](index=131&type=chunk) - Net cash provided by operating activities decreased by **$1.9 billion** in the first six months of fiscal 2025, primarily due to increased inventory levels and deferred tax payments[140](index=140&type=chunk) - Net cash used in investing activities decreased by **$17.2 billion**, mainly due to the prior year's SRS acquisition[141](index=141&type=chunk) - Net cash used in financing activities for the first six months of fiscal 2025 reflected **$4.6 billion** in dividends and **$1.2 billion** in long-term debt repayments, contrasting with prior year's debt proceeds for the SRS acquisition[142](index=142&type=chunk) [Critical Accounting Estimates](index=26&type=section&id=Critical%20Accounting%20Estimates) This section identifies and explains accounting estimates that require significant judgment and could impact financial results - There were no changes to critical accounting estimates or significant accounting policies during the first six months of fiscal 2025[144](index=144&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This section details the company's exposure to market risks, including interest rate and foreign currency fluctuations, noting no material changes - The company's primary market risks stem from interest rate fluctuations on its long-term debt portfolio and foreign currency exchange rate fluctuations affecting foreign operations and product purchases[146](index=146&type=chunk) - There have been no material changes to the company's market risks during the first six months of fiscal 2025 compared to those disclosed in the 2024 Form 10-K[146](index=146&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures.) This section confirms the effectiveness of disclosure controls and procedures while noting ongoing modifications to internal control processes - The company's disclosure controls and procedures were evaluated and deemed effective as of August 3, 2025[147](index=147&type=chunk) - An ongoing business transformation initiative involves upgrading and migrating accounting and finance systems, leading to modifications in internal control processes[148](index=148&type=chunk) - No other material changes to internal control over financial reporting occurred during the fiscal quarter ended August 3, 2025[149](index=149&type=chunk) [PART II – OTHER INFORMATION](index=28&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This part includes disclosures on legal proceedings, risk factors, equity sales, and other relevant corporate information [Item 1. Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings.) This section updates on legal proceedings, noting the final payment of penalties under a civil consent decree and no other material changes - No material changes occurred during the first six months of fiscal 2025 to the legal proceedings disclosure in the 2024 Form 10-K[151](index=151&type=chunk) - The company made the final payment of approximately **$1.7 million** in stipulated penalties under a civil consent decree with the U.S. Department of Justice and EPA related to lead-safe work practices, and is working to terminate the decree[153](index=153&type=chunk) [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors.) This section refers to the comprehensive risk factors outlined in the 2024 Form 10-K, confirming no material changes - Readers should carefully consider the risk factors outlined in Part I, Item 1A. 'Risk Factors' of the 2024 Form 10-K, as these could materially and adversely affect the business[154](index=154&type=chunk) - There have been no material changes in the risk factors discussed in the 2024 Form 10-K[154](index=154&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) This section details issuer purchases of equity securities, including deemed repurchases for employee stock plans and unregistered sales of deferred stock units | Period | Total Number of Shares Purchased | Average Price Paid Per Share ($) | | :-------------------------- | :------------------------------- | :--------------------------- | | May 5, 2025 – June 1, 2025 | 5,554 | $369.41 | | June 2, 2025 – June 29, 2025| 2,823 | $364.80 | | June 30, 2025 – August 3, 2025| 2,528 | $369.18 | | Total | 10,905 | $368.17 | - These share purchases reflect deemed repurchases under the Omnibus Stock Incentive Plan for tax withholding and exercise price payments, not publicly announced share repurchase programs[156](index=156&type=chunk)[157](index=157&type=chunk) - Approximately **$11.7 billion** remained available under the **$15.0 billion** share repurchase authorization as of August 3, 2025, but repurchases have been paused since March 2024[157](index=157&type=chunk) - The company issued **2,353** deferred stock units to non-employee directors and credited **915** deferred stock units under Restoration Plans during Q2 fiscal 2025, both pursuant to exemptions from registration[159](index=159&type=chunk)[160](index=160&type=chunk) [Item 5. Other Information](index=29&type=section&id=Item%205.%20Other%20Information.) This section confirms no director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the fiscal quarter ended August 3, 2025[161](index=161&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%206.%20Exhibits.) This section lists all exhibits filed with the Form 10-Q, including merger agreements, corporate documents, and certifications - Exhibits include the Agreement and Plan of Merger, Amended and Restated Certificate of Incorporation, By-Laws, certifications from executive officers (pursuant to Rule 13a-14(a) and Section 906 of Sarbanes-Oxley Act), and various XBRL taxonomy extension documents[163](index=163&type=chunk) [SIGNATURES](index=30&type=section&id=SIGNATURES) This section provides the official signatures of the company's executive officers, certifying the report's accuracy - The report is signed by Edward P. Decker (Chair, President and Chief Executive Officer), Richard V. McPhail (Executive Vice President and Chief Financial Officer), and Kimberly R. Scardino (Senior Vice President – Finance, Chief Accounting Officer and Controller) on August 25, 2025[166](index=166&type=chunk)

Core Insights - Home Depot, Inc. reported second-quarter fiscal 2025 results showing stable earnings per share but ongoing margin pressure, with EPS at $4.58, slightly down from $4.60 a year ago [1][8] - The company reaffirmed its fiscal 2025 guidance, expecting a gross margin of approximately 33.4% and a decline in adjusted earnings per share by about 2% from $15.24 in fiscal 2024 [4][8] Financial Performance - The second-quarter gross margin was 33.4%, a slight improvement from the previous year, but the operating margin decreased to 14.5% from 15.1% in the same quarter of fiscal 2024 [2][8] - Operating expenses increased by 65 basis points as a percentage of sales, reaching 18.9%, with SG&A expenses climbing 8.7%, outpacing sales growth of 4.9% [3][4] Competitor Analysis - Lowe's Companies, Inc. reported a 5.6% increase in adjusted EPS to $4.33, with an adjusted gross margin of 33.8% and an adjusted operating margin of 14.7%, indicating effective cost management [5] - Floor & Decor Holdings, Inc. saw an 11.5% increase in earnings to 58 cents per share, managing gross margin and profitability despite external pressures [6] Market Position - Home Depot shares have increased by 10.4% over the past year, outperforming the industry growth of 7.4% [7] - The company trades at a forward price-to-earnings ratio of 26.16, higher than the industry average of 23.50, and carries a Value Score of D [9] Sales and Earnings Estimates - The Zacks Consensus Estimate for Home Depot's current financial-year sales implies a year-over-year growth of 2.9%, while earnings per share are expected to decline by 1.4% [10]

Core Viewpoint - Home Depot's stock remains attractive despite a slight earnings miss, supported by a maintained full-year forecast and strategic initiatives aimed at growth [2][5]. Group 1: Financial Performance - Home Depot's revenue increased by over 7% in the last twelve months, while Lowe's saw a 3% decrease, with Home Depot reporting approximately $85 billion in sales in the first half of fiscal 2025, nearly double that of Lowe's [6]. - Home Depot's trailing twelve-month margin exceeded 13%, with a 13.7% operating margin in the first half of fiscal 2025, compared to Lowe's 12.4% and 13.3% respectively, indicating higher efficiency [6]. Group 2: Strategic Initiatives - Home Depot is focusing on penetrating the professional market through investments in digital tools, Pro Desk services, and in-store enhancements, which are expected to drive customer engagement and growth [5]. - The company benefits from a balanced customer base of DIY enthusiasts and professionals, with professionals contributing significantly to sales, representing about 30% of Lowe's sales [5]. Group 3: Market Position and Risks - Both Home Depot and Lowe's face similar trade risks due to their reliance on imports, but Home Depot's stronger margins allow it to pass on costs more effectively than Lowe's, which is more sensitive to price changes [6]. - Historical performance indicates that Home Depot is not immune to market downturns, having experienced drops of over 35% during the inflation-driven downturn of 2022 and about 38% during the pandemic in 2020 [3][8].

Group 1: Home Depot - Home Depot is the leading home improvement retailer, known for its high sales and popularity among consumers and contractors [4] - Recent sluggish sales are attributed to homeowners delaying major projects due to high interest rates and inflation affecting spending power [4][5] - In the fiscal second quarter, same-store sales increased by 1%, with foreign currency translations negatively impacting results by 0.4 percentage points [5] - The company has consistently prioritized dividend payments, with a history of increasing payouts annually since 2010, even during economic downturns [6][7] - Home Depot generated $7.2 billion in free cash flow in the first half of the year, significantly exceeding the $4.6 billion in dividends paid [8] - The current dividend yield stands at 2.3%, which is over 1 percentage point higher than the S&P 500's yield of 1.2% [8] Group 2: Target - Target has been a popular shopping destination for basic and exclusive merchandise, but sales have been affected by high prices and recent boycotts related to management decisions [9][10] - The fiscal second-quarter same-store sales dropped by 1.9%, with lower traffic accounting for a 1.3 percentage point decline [11] - Target announced a 1.8% increase in its quarterly dividend to $1.14, maintaining a commitment to dividend growth since 1967, making it a Dividend King [12] - The company has a payout ratio of 52%, indicating it can comfortably sustain the increased dividend payments [12] - At the new dividend rate, Target's stock yields approximately 4.6% [12]

Market Trends & Dynamics - The housing market is experiencing a slowdown, with home sales at the slowest summer pace in a decade [1] - This slowdown is attributed to higher buying costs and economic uncertainty, prompting homeowners, especially seniors, to stay put [1] - Existing home sales are projected to be the worst in over 25 years due to high prices, high rates, and seniors not moving [10] - A significant portion (60%) of US homes are owned by seniors, contributing to the "stuck" real estate market [9] Home Equity Lines of Credit (HELOC) - Home equity lines of credit (HELOC) have reversed a 17-year shrinking trend and are now the fastest-growing consumer loan category [3][4] - The HELOC market has grown from approximately $200 billion to $250 billion after bottoming out [4] - Private credit firms are actively pursuing HELOCs, with over $42 billion in reported forward purchase agreements for home equity and personal loans, potentially double that amount unreported [5][6] - 41% of all home equity debt is held by seniors, up from 17% in 2000 [11][12] Company Performance & Opportunities - Rocket Companies' home equity business is up over 70% from last year [6] - Mr Cooper's home equity activity is more than double last year [6] - SoFi is experiencing strong growth in its home equity and personal loan businesses, with over $12 billion in forward purchase agreements [7][8] - Home Depot reported strong earnings, indicating homeowners are undertaking renovations by tapping into their home equity [17] Risk Assessment & Consumer Behavior - Home equity loans are currently a relatively cheap form of debt, second only to mortgages [14] - Loan-to-value ratios are significantly lower than during the last housing crisis, averaging just over 20% compared to over 50% [15] - Seniors are tapping into home equity to offset rising homeownership costs, such as property insurance (up over 70% in the last 5 years) and property taxes [12][13] - Increased HELOC usage may be impacting credit card growth, with subprime credit card issuers potentially facing revenue challenges [20][21]

Company Overview - Home Depot is the leading home improvement retailer, operating over 2,300 stores across the U.S., Canada, and Mexico [1][4] - The company has faced challenges in expanding outside North America, resulting in fewer than one new location opened per month [2][6] Financial Performance - In the first half of 2025, Home Depot reported revenue of $85 billion, reflecting a 7% growth compared to the same period in 2024 [9] - Operating income grew by only 0.6% due to costs of sales and operating expenses rising faster than revenue [10] - Net income for the first two quarters of 2025 was $8 billion, a decrease of 2.2% year-over-year [10] Dividend and Valuation - Home Depot's current annual dividend payout is $9.20 per share, yielding 2.25%, which is above the S&P 500 average of 1.2% [12] - The company's price-to-earnings (P/E) ratio is just over 27, below the S&P 500 average of 30, but may be perceived as pricey given the slow growth [14] Future Outlook - Over the next five years, Home Depot is expected to provide rising dividends and higher returns, but not sufficient to outperform the S&P 500 [15] - The company is likely to benefit from slow, steady returns, but lacks meaningful growth prospects beyond inflation and population increases [16] - The rising dividend is expected to continue benefiting shareholders, but underperformance may lead investors to seek opportunities elsewhere [17]

Core Viewpoint - Dividend investing is highlighted as a strategy for generating passive income, with a focus on attractive yields in the consumer goods sector, specifically featuring Home Depot, JD.com, and Target as strong investment options. Group 1: Home Depot - Home Depot is recognized as a leader in dividend growth, with comparable-store sales increasing by 1.4% and revenue rising by 4.9% to $45.3 billion in the second quarter [3][4] - The company anticipates full-year revenue growth of about 5%, benefiting from potential interest rate cuts and a cooling labor market [4] - Home Depot is positioned to capitalize on a national housing shortage estimated at 4 million homes, offering a dividend yield of 2.3% [5] Group 2: JD.com - JD.com, China's second-largest e-commerce company, has seen its shares decline by 71% from previous highs, resulting in a dividend yield of 3.21% [6][8] - The company employs a direct-sales model, investing in its own inventory and utilizing a robust warehouse network for efficient delivery [7] - JD.com reported a 22% year-over-year revenue increase in the second quarter, with active customers growing by 40%, and is focused on improving supply chain efficiency through AI investments [8][10] Group 3: Target - Target's revenue fell by less than 1% year-over-year, with comparable-store sales down 1.9%, and earnings per share at $2.05, slightly beating expectations [11] - The announcement of a new CEO, Michael Fiddelke, has raised concerns about the company's direction, as the market anticipated an outsider for a fresh perspective [12][13] - Target has a strong dividend history, being a Dividend King with 54 consecutive years of annual increases, currently offering a high dividend yield of 4.5% [15]

Core Viewpoint - Home Depot has declared a new quarterly dividend of $2.30 per share, which has positively impacted its stock price, leading to a nearly 4% increase in trading, outperforming the S&P 500 index's 1.5% rise [1][2]. Dividend Announcement - Home Depot's board of directors announced a quarterly dividend of $2.30 per share, to be paid on September 18 to shareholders of record as of September 4, resulting in a dividend yield of 2.2% based on the recent closing share price [2]. - This marks the 154th consecutive quarter that Home Depot has paid a dividend, highlighting its commitment to returning value to shareholders [4]. Financial Performance - In the recent second-quarter earnings report, Home Depot reported a total revenue increase of nearly 5% year-over-year, although global same-store sales growth was modest at 1% [5]. - The company's performance was generally in line with analyst expectations, and management's positive comments regarding pricing and guidance contributed to favorable investor sentiment [5].