Can Home Depot Manage Tariff & Logistics Pressures on Margins?

The Home Depot Inc. HD appears well-positioned to manage tariff and logistics-related cost pressures, although the margin environment remains challenging. In the second quarter of fiscal 2026, the gross margin increased about 25 basis points (bps) to 33.7%. The company received $730 million of IEEPA tariff refunds, of which $685 million reduced cost of goods sold. This provided roughly 145 bps of gross-margin benefits, helping offset about 60 bps of higher costs related to fuel, energy and other product inputs.

However, these refunds are unlikely to provide a lasting margin boost. Management expects rising fuel, energy and other product-input costs to fully offset the tariff-refund benefit over the full year. Home Depot is also dealing with incremental tariff pressures that were not contemplated in its original 2026 plan. Still, management highlighted the merchandising and supply-chain teams’ ability to offset such pressures while maintaining customer value.

The company’s record provides some reassurance. Management noted that despite significant cost volatility in recent years, Home Depot has consistently managed its gross margin near plan through pricing, sourcing and cost-management actions. For the fourth quarter, the gross margin is expected to be relatively flat year over year, suggesting that near-term tariff-refund timing effects should normalize. Home Depot expects a fiscal 2026 gross margin of 33.1%, indicating confidence that it can navigate elevated cost pressures without materially disrupting its annual margin outlook.

Are LOW & FND Managing Tariff-Driven Cost Pressures Well?

Tariff-driven cost pressures are testing retailers’ ability to protect profitability, putting the spotlight on how Lowe’s Companies Inc. LOW and Floor & Decor Holdings Inc. FND are using pricing, sourcing and cost-control measures to manage margin headwinds.

Lowe’s appears capable of managing tariff and logistics pressures, though near-term margin headwinds remain concerning. In second-quarter fiscal 2026, the gross margin fell 80 bps, while a roughly 30-bps tariff refund benefit was largely offset by elevated fuel and transportation costs. Still, disciplined cost management and PPI initiatives supported profitability. Management expects fuel and transportation pressures to remain elevated in the second half, making productivity gains critical to margin protection.

Floor & Decor appears positioned to manage tariff and logistics pressures, although supply-chain costs remain a near-term challenge. In second-quarter 2026, the adjusted gross margin slipped 20 bps to 43.7%. Management said that tariff refunds are being used to offset inflation from oil and supply-chain costs, while higher trucking rates are emerging. The company expects an adjusted gross margin of 43.6-43.8%, suggesting confidence in managing these pressures.

HD’s Price Performance, Valuation & Estimates

Shares of Home Depot have lost 26.3% in the past year versus the industry’s decline of 32%.

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From a valuation standpoint, HD trades at a forward price-to-earnings ratio of 19.87X compared with the industry’s average of 17.96X.

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The Zacks Consensus Estimate for HD’s fiscal 2026 and 2027 earnings per share (EPS) implies year-over-year growth of 2.1% and 6.9%, respectively. The company’s EPS estimate for fiscal 2026 has moved up by a penny in the past 30 days. Meanwhile, the consensus estimate for fiscal 2027 EPS has moved down 0.9% in the past 30 days.

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Home Depot currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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