⚠ The Distributors Dilute the MarginLow threat

Home Depot (HD) — threat to the moat

Home Depot's own guidance shows its gross margin slipping as the lower-margin distributors it bought grow.

Home Depot's gross margin is being pulled down by its own strategy. The 10-Q says the decrease in gross margin in the first six months of fiscal 2026 reflects the inclusion of GMS in the consolidated results, as well as cost pressures, largely offset by the tariff refunds1. The six-month margin was 33.4% against 33.6%2.

Six-month gross margin (%)33.6%H1 FY202533.4%H1 FY202633.1%FY2026 guideHome Depot Q2 fiscal 2026 Form 10-Q; fiscal 2026 guidance
Down a little each step.

The guidance says the same. Home Depot expects about 33.1% for fiscal 20263, against 33.3% in fiscal 20254, while the refunds, a one-time gain, sit inside the year.

The store margin is not disclosed separately, so investors see only the blend.

The guidance breaks the effect out. Home Depot guides an operating margin of 12.4% to 12.6% for fiscal 2026 but an adjusted operating margin of 12.8% to 13.0%5, the difference being the amortisation of acquired intangibles. Part of the dilution is accounting; part is the distributors' lower gross margin.

The number to watch is the fiscal 2026 gross margin excluding the roughly $685 million of refunds6. A figure well below 33% would mean the dilution from the distributors is larger than the guidance implies.

References
  1. ReportedThe 10-Q says the decrease in gross margin in the first six months of fiscal 2026 reflects the inclusion of GMS in the consolidated results, as well as cost pressures, largely offset by the tariff refunds.
    The Home Depot Form 10-Q for the quarter ended 2 August 2026 - segment results, product lines, online sales, IEEPA tariff refunds, the Mingledorff's acquisition and trailing ROIC of 24.8%. — Q2 fiscal 2026 · publ. 25 August 2026 · source ↗
  2. ReportedThe six-month margin was 33.4% against 33.6%.
    The Home Depot Form 10-Q for the quarter ended 2 August 2026 - segment results, product lines, online sales, IEEPA tariff refunds, the Mingledorff's acquisition and trailing ROIC of 24.8%. — Q2 fiscal 2026 · publ. 25 August 2026 · source ↗
  3. ReportedHome Depot expects about 33.1% for fiscal 2026, against 33.3% in fiscal 2025, while the refunds, a one-time gain, sit inside the year.
    The Home Depot fourth-quarter and fiscal 2025 results release, Form 8-K exhibit 99.1 - fiscal 2026 guidance, the dividend raised to $2.33 a quarter, adjusted EPS of $14.69. — Fiscal 2025 · publ. 24 February 2026 · source ↗
  4. ReportedHome Depot expects about 33.1% for fiscal 2026, against 33.3% in fiscal 2025, while the refunds, a one-time gain, sit inside the year.
    The Home Depot Form 10-K for fiscal 2025 (the 52 weeks ended 1 February 2026) - Item 1 business and Item 2 properties: stores, Pros, SRS, competition and supply chain. — Fiscal 2025 · publ. 18 March 2026 · source ↗
  5. ReportedHome Depot guides an operating margin of 12.4% to 12.6% for fiscal 2026 but an adjusted operating margin of 12.8% to 13.0%, the difference being the amortisation of acquired intangibles.
    The Home Depot fourth-quarter and fiscal 2025 results release, Form 8-K exhibit 99.1 - fiscal 2026 guidance, the dividend raised to $2.33 a quarter, adjusted EPS of $14.69. — Fiscal 2025 · publ. 24 February 2026 · source ↗
  6. ReportedThe number to watch is the fiscal 2026 gross margin excluding the roughly $685 million of refunds.
    The Home Depot Form 10-Q for the quarter ended 2 August 2026 - segment results, product lines, online sales, IEEPA tariff refunds, the Mingledorff's acquisition and trailing ROIC of 24.8%. — Q2 fiscal 2026 · publ. 25 August 2026 · source ↗
Sources
Generated September 26, 2026