Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis summarizes the significant factors affecting our consolidated operating results, liquidity and capital resources during the three and six months ended August 1, 2025, and August 2, 2024. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements that are included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2025 (the Annual Report), as well as the consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) contained in this report. Unless otherwise specified, all comparisons made are to the corresponding period of fiscal 2024. This discussion and analysis is presented in four sections:

• Executive Overview

• Operations

• Financial Condition, Liquidity and Capital Resources

• Critical Accounting Policies and Estimates

EXECUTIVE OVERVIEW

The following table highlights our financial results:

			Three Months Ended												Six Months Ended
(in millions, except per share data)			August 1, 2025						August 2, 2024						August 1, 2025						August 2, 2024
Net sales			$	23,959					$	23,586					$	44,888					$	44,950
Net earnings			2,398						2,383						4,038						4,137
Diluted earnings per share			$	4.27					$	4.17					$	7.19					$	7.23
Net cash provided by operating activities															$	7,610					$	7,415
Capital expenditures															1,013						808
Repurchases of common stock1															71						1,756
Cash dividend payments															1,290						1,262

1 Repurchases of common stock on a trade-date basis.

Net sales in the second quarter of fiscal 2025 improved 1.6% to $24.0 billion compared to net sales of $23.6 billion in the second quarter of fiscal 2024. Comparable sales for the second quarter of fiscal 2025 increased 1.1%, consisting of an increase in comparable average ticket of 2.9%, partially offset by a decrease of 1.8% in comparable customer transactions. Net earnings were $2.4 billion in the second quarter of fiscal 2025 and fiscal 2024. Diluted earnings per common share were $4.27 in the second quarter of fiscal 2025 compared to $4.17 in the second quarter of fiscal 2024. Included in the second quarter of 2025 results were pre-tax expenses of $43 million consisting of transaction costs and purchase accounting adjustments related to the acquisition of ADG, which decreased diluted earnings per common share by $0.06. Excluding the impact of this item, adjusted diluted earnings per common share was $4.33 in the second quarter of 2025 (see the non-GAAP financial measures discussion).

For the first six months of fiscal 2025, cash flows from operating activities were approximately $7.6 billion, with $1.0 billion used for capital expenditures. During the three months ended August 1, 2025, we closed on the acquisition of ADG for $1.3 billion. In addition, we paid $645 million in dividends, continuing to deliver on our commitment to return cash to shareholders.

Second quarter fiscal 2025 comparable sales improved 1.1% driven by strength in seasonal categories as weather improved throughout the quarter, along with continued strength with our Pro customer, and online. In addition to sales growth, our persistent focus on productivity drove stronger than expected operating performance. Through our Total Home strategy, we were able to deliver continued Pro growth this quarter, while also growing online sales due to a more immersive shopping experience. And to build on this immersive experience, during the second quarter, we launched the first Home Improvement Creator Network, designed to drive brand loyalty among tech-savvy generations. We are partnering with top influencers to tap into the growing trend of social media-driven DIY inspiration.

In addition, our Perpetual Productivity Initiatives (PPI) continue to deliver improvements throughout the business. Through our SKU rationalizations, we are making our inventory and space more productive. Reducing total SKU count in our stores will allow us to reinvest in deeper inventory quantities of our best-selling SKUs to drive sales and reduce out-of-stocks. We are also focused on reducing seasonal markdowns through our enhanced assortment planning tools to help us better anticipate demand

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and optimize our inventory allocation. Lastly, we are streamlining our Freight Flow process, creating more efficient truck organization, improved labeling, and redesigned carts creating a more direct path from truck to shelf. These enhancements should reduce unnecessary touch points and footsteps, reducing the overall time to complete these processes.

Overall, we delivered solid results in the second quarter as we continued to navigate the uncertain macro environment and provide our customers with compelling value across our product assortments. We have leaned into our tools and processes to quickly adjust to changing demand trends through the quarter to deliver on our operating commitments and continue to execute our long-term strategy to invest in areas that position us for sustainable growth.

OPERATIONS

The following table sets forth the percentage relationship to net sales of each line item of the consolidated statements of earnings (unaudited), as well as the percentage change in dollar amounts from the prior period. This table should be read in conjunction with the following discussion and analysis and the consolidated financial statements (unaudited), including the related notes to the consolidated financial statements (unaudited).

			Three Months Ended												Basis Point Increase/(Decrease) in Percentage of Net Sales						Six Months Ended												Basis Point Increase/(Decrease) in Percentage of Net Sales
			August 1, 2025						August 2, 2024									August 1, 2025						August 2, 2024
Net sales			100.00		%				100.00		%				N/A						100.00		%				100.00		%				N/A
Gross margin			33.81						33.47						34						33.61						33.34						27
Expenses:
Selling, general and administrative			17.42						17.07						35						18.31						17.88						43
Depreciation and amortization			1.91						1.79						12						2.01						1.89						12
Operating income			14.48						14.61						(13)						13.29						13.57						(28)
Interest – net			1.31						1.34						(3)						1.45						1.49						(4)
Pre-tax earnings			13.17						13.27						(10)						11.84						12.08						(24)
Income tax provision			3.16						3.17						(1)						2.84						2.88						(4)
Net earnings			10.01		%				10.10		%				(9)						9.00		%				9.20		%				(20)

The following table sets forth key metrics utilized by management in assessing business performance. This table should be read in conjunction with the following discussion and analysis and the consolidated financial statements (unaudited), including the related notes to the consolidated financial statements (unaudited).

			Three Months Ended												Six Months Ended
Other Metrics			August 1, 2025						August 2, 2024						August 1, 2025						August 2, 2024
Comparable sales increase/(decrease) 1			1.1		%				(5.1)		%				(0.3)		%				(4.6)		%
Total customer transactions (in millions)			225						229						424						436
Average ticket 2,3			$	106.45					$	103.04					$	105.83					$	103.12
At end of period:
Number of stores			1,753						1,746
Sales floor square feet (in millions)			196						195
Average store size selling square feet (in thousands) 4			112						112
Net earnings to average debt and shareholders’ deficit			25.3		%				26.5		%
Return on invested capital 5			29.5		%				30.9		%

1 A comparable location is defined as a retail location that has been open longer than 13 months. A location that is identified for relocation is no longer considered comparable in the month of its relocation. The relocated location must then remain open longer than 13 months to be considered comparable. A location we decide to close is no longer considered comparable as of the beginning of the month in which we announce its closing. Operating locations which are sold are included in comparable sales until the date of sale. Comparable sales are presented on a transacted basis when tender is accepted from a customer. Comparable sales include online sales, which positively impacted second quarter fiscal 2025 and fiscal 2024 comparable sales by approximately 85 basis points and 30 basis points, respectively,

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and year-to-date fiscal 2025 and fiscal 2024 sales by approximately 75 basis points and 20 basis points, respectively. The comparable store sales calculation included in the preceding table was calculated using comparable 13-week and 26-week periods.

2 In the first quarter of fiscal 2025, the Company adjusted its customer transactions metric to exclude certain order modifications which were previously included as a separate transaction. The prior year period has been adjusted to align with the current period presentation.

3 Average ticket is defined as net sales divided by the total number of customer transactions.

4 Average store size selling square feet is defined as sales floor square feet divided by the number of stores open at the end of the period.

5 Return on invested capital is calculated using a non-GAAP financial measure. See below for additional information and reconciliations of non-GAAP measures.

Non-GAAP Financial Measures

Adjusted Diluted Earnings Per Share

Adjusted diluted earnings per share is considered a non-GAAP financial measure. The Company believes this non-GAAP financial measure provides useful insight for analysts and investors in understanding the comparison of operational performance for fiscal 2025. Adjusted diluted earnings per share excludes the impact of certain items, further described below, not contemplated in the Company’s business outlook for fiscal 2025.

Fiscal 2025 Impacts

• In the second quarter of fiscal 2025, the Company recognized pre-tax expenses of $43 million consisting of transaction costs and purchase accounting adjustments related to the acquisition of Artisan Design Group (Artisan Design Group acquisition).

Fiscal 2024 Impacts

*•*In the second quarter of fiscal 2024, the Company recognized pre-tax income of $43 million consisting of a realized gain on the contingent consideration associated with the fiscal 2022 sale of the Canadian retail business (Canadian retail business transaction).

Adjusted diluted earnings per share should not be considered an alternative to, or more meaningful indicator of, the Company’s diluted earnings per common share as prepared in accordance with GAAP. The Company’s methods of determining non-GAAP financial measures may differ from the method used by other companies and may not be comparable.

			Three Months Ended
			August 1, 2025																		August 2, 2024
			Pre-Tax Earnings						Tax****1						Net Earnings						Pre-Tax Earnings						Tax****1						Net Earnings
Diluted earnings per share, as reported															$	4.27																	$	4.17
Non-GAAP adjustments – per share impacts
Artisan Design Group acquisition			0.08						(0.02)						0.06						—						—						—
Canadian retail business transaction			—						—						—						(0.07)						—						(0.07)
Adjusted diluted earnings per share															$	4.33																	$	4.10

1 Represents the corresponding tax benefit or expense specifically related to the item excluded from adjusted diluted earnings per share.

Return on Invested Capital

Return on Invested Capital (ROIC) is calculated using a non-GAAP financial measure. Management believes ROIC is a meaningful metric for analysts and investors as a measure of how effectively the Company is using capital to generate financial returns. Although ROIC is a common financial metric, numerous methods exist for calculating ROIC. Accordingly, the method used by our management may differ from the methods used by other companies. We encourage you to understand the methods used by another company to calculate ROIC before comparing its ROIC to ours.

We define ROIC as the rolling 12 months’ lease adjusted net operating profit after tax (Lease adjusted NOPAT) divided by the average of current year and prior year ending debt and shareholders’ deficit. Lease adjusted NOPAT is a non-GAAP financial measure, and net earnings is considered to be the most comparable GAAP financial measure. The calculation of ROIC, together with a reconciliation of net earnings to Lease adjusted NOPAT, is as follows:

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			For the Periods Ended
(In millions, except percentage data)			August 1, 2025						August 2, 2024
Calculation of Return on Invested Capital
Numerator
Net Earnings			$	6,858					$	6,931
Plus:
Interest expense – net			1,295						1,361
Operating lease interest			176						169
Provision for income taxes			2,177						2,191
Lease adjusted net operating profit			10,506						10,652
Less:
Income tax adjustment1			2,531						2,559
Lease adjusted net operating profit after tax			$	7,975					$	8,093
Denominator
Average debt and shareholders’ deficit2			$	27,069					$	26,160
Net earnings to average debt and shareholders’ deficit			25.3		%				26.5		%
Return on invested capital			29.5		%				30.9		%

1 Income tax adjustment is defined as lease adjusted net operating profit multiplied by the effective tax rate, which was 24.1% and 24.0% for the periods ended August 1, 2025, and August 2, 2024, respectively.

2 Average debt and shareholders’ deficit is defined as average current year and prior year ending debt, including current maturities, short-term borrowings, and operating lease liabilities, plus the average current year and prior year ending total shareholders’ deficit.

Results of Operations

Net Sales – Net sales in the second quarter of 2025 increased 1.6% to $24.0 billion. Comparable sales increased 1.1%, consisting of a 2.9% increase in comparable average ticket, partially offset by a 1.8% decline in comparable customer transactions.

During the second quarter of 2025, nine of our 14 product categories experienced positive comparable store sales, led by Building Materials, Appliances, Lawn & Garden, and Tools. Strength in these categories reflects continued growth with our Pro customer and online, as well as our broad assortment of appliances available next-day to our customers in the majority of the United States.

Net sales decreased 0.1% to $44.9 billion for the first six months of 2025 compared to 2024. Comparable sales also declined 0.3% over the same period, driven by a 2.8% decline in comparable customer transactions, partially offset by a comparable average ticket increase of 2.5%.

Gross Margin – For the second quarter of 2025, gross margin as a percentage of sales increased 34 basis points compared to 2024. The gross margin improvement for the quarter was driven by ongoing productivity initiatives, along with improvements in inventory shrink and credit revenue.

Gross margin as a percentage of sales increased 27 basis points in the first six months of 2025 compared to 2024, primarily due to the same factors that impacted gross margin for the second quarter.

SG&A – For the second quarter of 2025, SG&A expense deleveraged 35 basis points as a percentage of sales compared to the second quarter of 2024, primarily due to cycling the prior year gain on contingent consideration associated with the fiscal 2022 sale of the Canadian retail business, expenses associated with the acquisition of ADG, and employee compensation and benefits.

SG&A expense as a percentage of sales deleveraged 43 basis points as a percentage of sales for the first six months of 2025 compared to 2024, primarily due to the same factors that impacted SG&A for the second quarter.

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Depreciation and Amortization – Depreciation and amortization deleveraged 12 basis points as a percentage of sales for the second quarter of 2025 compared to 2024.

Depreciation and amortization deleveraged 12 basis points as a percentage of sales for the first six months of 2025 compared to 2024.

Interest – Net – Net interest expense for the second quarter of 2025 leveraged three basis points as a percentage of sales.

Net interest expense for the first six months of 2025 deleveraged four basis points as a percentage of sales.

Income Tax Provision – Our effective income tax rates were 24.0% and 23.9% for the three months ended August 1, 2025 and August 2, 2024, respectively, and 24.0% and 23.8% for the six months ended August 1, 2025 and August 2, 2024, respectively.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

Cash flows from operations, combined with our continued access to capital markets on both a short-term and long-term basis, as needed, remain adequate to fund our operations, make strategic investments to support long-term growth, return cash to shareholders in the form of dividends, and repay debt maturities as they become due. We believe these sources of liquidity will continue to support our business for the next twelve months. As of August 1, 2025, we held $4.9 billion of cash and cash equivalents, as well as $4.0 billion in undrawn capacity on our revolving credit facilities.

Cash Flows Provided by Operating Activities

			Six Months Ended
(In millions)			August 1, 2025						August 2, 2024
Net cash provided by operating activities			$	7,610					$	7,415

Cash flows from operating activities continued to provide the primary source of our liquidity. The increase in net cash provided by operating activities for the six months ended August 1, 2025, compared to the six months ended August 2, 2024, was primarily driven by timing of prior year income tax payments and other changes in working capital, partially offset by lower net earnings.

Cash Flows Used in Investing Activities

			Six Months Ended
(In millions)			August 1, 2025						August 2, 2024
Net cash used in investing activities			$	(2,343)					$	(800)

Net cash used in investing activities primarily consists of transactions related to capital expenditures and the acquisition of ADG. Our capital expenditures generally consist of investments in our strategic initiatives to enhance our ability to serve customers, improve existing stores, and support expansion plans. Total capital expenditures and business acquisition activity totaled $2 billion and $808 million for the six months ended August 1, 2025, and August 2, 2024, respectively. For fiscal 2025, our guidance for capital expenditures is approximately $2.5 billion.

Cash Flows Used in Financing Activities

			Six Months Ended
(In millions)			August 1, 2025						August 2, 2024
Net cash used in financing activities			$	(2,168)					$	(3,176)

Net cash used in financing activities primarily consists of transactions related to our debt, share repurchases, and cash dividend payments.

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Debt

Our commercial paper program is supported by the 2023 Credit Agreement and the Third Amended and Restated Credit Agreement. The amounts available to be drawn under the 2023 Credit Agreement and the Third Amended and Restated Credit Agreement are reduced by the amount of borrowings under our commercial paper program. There were no outstanding borrowings under our commercial paper program, 2023 Credit Agreement, or the Third Amended and Restated Credit Agreement as of August 1, 2025. Total combined availability under the 2023 Credit Agreement and the Third Amended and Restated Credit Agreement as of August 1, 2025, was $4.0 billion.

The 2023 Credit Agreement and the Third Amended and Restated Credit Agreement contain customary representations, warranties, and covenants. We were in compliance with those covenants at August 1, 2025.

The following table includes additional information related to our debt for the six months ended August 1, 2025, and August 2, 2024:

			Six Months Ended
(In millions)			August 1, 2025						August 2, 2024
Repayment of debt			(796)						(47)
Maximum commercial paper outstanding at any period			—						250

Share Repurchases

We have an ongoing share repurchase program, authorized by the Company’s Board of Directors, that is executed through purchases made from time to time either in the open market or through private off-market transactions. We also withhold shares from employees to satisfy tax withholding liabilities. Shares repurchased are retired and returned to authorized and unissued status. The following table provides, on a settlement date basis, the total number of shares repurchased, average price paid per share, and the total cash used to repurchase shares for the six months ended August 1, 2025, and August 2, 2024:

			Six Months Ended
(In millions, except per share data)			August 1, 2025						August 2, 2024
Total amount paid for share repurchases1			$	113					$	1,930
Total number of shares repurchased			0.5						8.4
Average price paid per share			$	243.02					$	230.91

1 Excludes unsettled share repurchases and unpaid excise taxes.

As of August 1, 2025, we had $10.8 billion remaining available under our share repurchase program with no expiration date.

Dividends

Dividends are paid in the quarter immediately following the quarter in which they are declared. Dividends paid per share increased from $2.20 per share for the six months ended August 2, 2024, to $2.30 per share for the six months ended August 1, 2025.

Capital Resources

We expect to continue to have access to the capital markets on both a short-term and long-term basis when needed for liquidity purposes by issuing commercial paper or new long-term debt. The availability and the borrowing costs of these funds could be adversely affected, however, by a downgrade of our debt ratings or a deterioration of certain financial ratios. The table below reflects our debt ratings by Standard & Poor’s (S&P) and Moody’s as of August 28, 2025, which we are disclosing to enhance understanding of our sources of liquidity and the effect of our ratings on our cost of funds. Our commercial paper and senior debt ratings may be subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating.

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Debt Ratings			S&P			Moody’s
Commercial Paper			A-2			P-2
Senior Debt			BBB+			Baa1
Senior Debt Outlook			Stable			Stable

There are no provisions in any agreements that would require early cash settlement of existing debt or leases as a result of a downgrade in our debt rating or a decrease in our stock price.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our significant accounting policies are described in Note 1 to the consolidated financial statements presented in the Annual Report. Our critical accounting policies and estimates are described in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report. Our significant and critical accounting policies and estimates have not changed significantly since the filing of the Annual Report, except as set forth below.

Business Combinations

Description

We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. Goodwill is measured as of the acquisition date as the excess of consideration transferred over the net acquisition‑date fair value of the net identifiable assets acquired and liabilities assumed. During the measurement period, which is up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill due to the use of preliminary information in our initial estimates. Subsequent to the measurement period, any adjustments are recorded to earnings.

Judgments and uncertainties involved in the estimate

The determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques when fair value is not readily available and requires a significant amount of management judgment. For the valuation of intangible assets acquired in a business combination, we typically use an income approach. Specifically, for the acquisition of ADG, we used the multi-period excess earnings method to value Customer Relationships and the relief from royalty method to value Tradenames. The significant assumptions used to estimate the fair value of intangibles included forecasted revenues and expenses, growth rates, royalty rates, attrition rates, and discount rates.

Effect if actual results differ from assumptions

Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the determination of the fair value of the intangible assets acquired.