Home Depot's Distribution Arm Fuels Growth Amid Housing Uncertainty

Home Depot's (HD) stock has been lagging behind its 52-week high by around 19% after a 16% decline over the past year. Despite beating its own expectations for fiscal Q2 2026, the company is yet to see a housing recovery, which it believes will take some time. However, there's another area where Home Depot has seen significant growth - its distribution arm, SRS.

SRS, which sells to homebuilders, commercial customers, and remodelers, had been running slightly negative comparable sales in fiscal Q1 2026 due to low single-digit declines in roofing. But in fiscal Q2 2026, it comped above the company average, with positive results in every vertical.

The turn of events matters beyond just SRS because of what it does inside the stores. QuoteCenter, the marketplace that stores use to sell larger products through an outside network of distributors, now runs on SRS's full catalog, meaning sales close within the company instead of being outsourced. Within the last 12 months, 90% of stores have closed a sale through SRS.

The build-out of this new distribution business is not without costs, however. Folding in the GMS and Mingledorff acquisitions has cost around 60 basis points of gross margin in fiscal Q2 2026 due to mix alone. But despite this, gross margin rose about 25 basis points year over year to 33.7%.

Home Depot's management is still cautious about the housing market and reaffirmed its fiscal 2026 guidance: comparable sales flat to 2%, total sales up 2.5% to 4.5%. But they do expect SRS to deliver mid-single-digit organic sales growth in fiscal 2026 and plan 40 to 50 new SRS branches.