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Item 7. Management’s Discussion and Analysis

2026-03-18 compared with 2025-03-21 · 93 added, 88 removed, 173 unchanged (51% of the section changed)

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Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Form 10-K for fiscal 2024.

For purposes of comparison, fiscal 2025 and fiscal 2023 include 52 weeks and fiscal 2024 includes 53 weeks.

Executive Summary

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Net earnings were $14.2 billion, or $14.23 per diluted share.

Fiscal 2024 consisted of 53 weeks compared to 52 weeks in fiscal 2023.

The 53 rd week in fiscal 2024 added approximately $2.5 billion of net sales and increased diluted earnings per share by approximately $0.30.

During fiscal 2025, we generated $16.3 billion of cash flow from operations, received $4.1 billion of proceeds from commercial paper borrowings, net of repayments, and received $2.2 billion of proceeds from the issuance of long-term debt, net of discounts.

This cash flow, together with cash on hand, was used to fund $9.2 billion in cash dividends, repay $5.0 billion of long-term debt, and fund $3.7 billion in capital expenditures.

As described below, we also completed the GMS acquisition for aggregate cash consideration totaling approximately $5.5 billion , including the repayme nt of certain of GMS’s outstanding debt.

In February 2026, we announced a 1.3% increase in our quarterly cash dividend to $2.33 per share.

Our inventory turnover ratio was 4.4 times at the end of fiscal 2025, compared to 4.7 times at the end of fiscal 2024.

The decrease in our inventory turnover ratio was primarily driven by higher average inventory levels during fiscal 2025.

Our ROIC was 25.7% for fiscal 2025 and 31.3% for fiscal 2024.

The decrease in ROIC was primarily driven by higher average equity due to our ongoing pause in share repurchases and higher average long-term debt largely due to the financing of the SRS acquisition.

See the Non-GAAP Financial Measures sec tion below for our definition and calculation of ROIC.

During fiscal 2025, we opened ten new stores in the U.S.

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A total of 324 of our stores, or 13.7%, were located in Canada and Mexico.

Total sales per retail square foot were $599.92 in fiscal 2024.

Our inventory turnover ratio was 4.7 times at the end of fiscal 2024, compared to 4.3 times at the end of fiscal 2023.

The increase in our inventory turnover ratio was primarily driven by lower average inventory levels within our Primary segment during fiscal 2024.

During fiscal 2024, we generated $19.8 billion of cash flow from operations, received approximately $10.0 billion of proceeds from the issuance of long-term debt, net of discounts, and received $316 million of proceeds from commercial paper borrowings, net of repayments.

We utilized a combination of commercial paper borrowings and the issuance of long-term debt, together with cash on hand, to fund the acquisition of SRS, with cash purchase consideration totaling $17.7 billion.

Specifically, in June 2024, leading up to the SRS acquisition on June 18, 2024, we raised commercial paper borrowings of over $15.0 billion to fund the transaction, of which approximately $10.0 billion was then immediately repaid with the proceeds from our issuance of long-term debt.

We have subsequently repaid all of the commercial borrowings used to fund the acquisition and ended fiscal 2024 with $316 million of commercial paper borrowings outstanding.

During fiscal 2024, we also paid $8.9 billion in cash dividends, funded $3.5 billion in capital expenditures, repaid $1.5 billion of long-term debt, and funded $649 million of share repurchases, prior to pausing share repurchases in March 2024.

In February 2025, we announced a 2.2% increase in our quarterly cash dividend to $2.30 per share.

Our ROIC was 31.3% for fiscal 2024 and 36.7% for fiscal 2023.

The decrease in ROIC was primarily driven by higher average long-term debt and higher average equity due to the financing of the SRS acquisition.

See the Non-GAAP Financial Measures section below for our definition and calculation of ROIC.

SRS Acquisition

On March 27, 2024, we entered into a definitive agreement to acquire SRS, a leading residential specialty trade distribution company across several verticals serving the professional roofer, landscaper and pool contractor.

On June 18, 2024, following the satisfaction or waiver of the applicable closing conditions, including receipt of the requisite regulatory approvals, the acquisition was completed and all merger consideration was transferred.

We believe the acquisition of SRS will accelerate the Company’s growth with the Pro.

The acquisition is expected to establish the Company as a leading specialty trade distributor across multiple verticals, complement our existing capabilities, and enable us to better serve complex project purchase occasions with the renovator/remodeler.

Refer to Note 2 and Note 13 to our consolidated financial statements for further discussion of the impact of the acquisition on our consolidated financial statements.

At the end of fiscal 2025, we also operated over 1,250 locations within our SRS non-reportable operating segments throughout the U.S.

GMS Acquisition

On June 29, 2025, we entered into a definitive agreement to acquire GMS, a leading distributor of specialty building products, including drywall, ceilings, steel framing and other complementary construction products, through branches located across the U.S.

Under the terms of the merger agreement, we, through a wholly owned subsidiary, made a cash tender offer to purchase all outstanding shares of GMS common stock for $110 per share.

All conditions of the offer were satisfied, including receipt of the requisite regulatory approvals, and the merger was completed on September 4, 2025.

As a result of the merger, GMS became a direct subsidiary of SRS and an indirect, wholly owned subsidiary of the Company.

We believe the GMS acquisition will enhance SRS's position as a leading multi-category building materials distributor, bringing differentiated capabilities, product categories and customer relationships that are highly complementary to SRS's existing business.

Refer to Note 13 to our consolidated financial statements for further discussion on the acquisition.

Tariffs and Other Trade Policy Matters

We continue to monitor developments with respect to tariffs and other trade policy matters closely, including impacts from the recent U.S.

Supreme Court decision that struck down tariffs imposed under the International Emergency Economic Powers Act.

We have worked, and continue to work, diligently to diversify our global supply chain and to implement other cost mitigation initiatives.

While we experienced increased costs as a result of tariffs in fiscal 2025, our actions, including diversification efforts and some price increases, along with our scale, vendor relationships, experienced internal teams, and other initiatives allowed us to effectively mitigate the impact on our results of operations.

We plan to continue to assess our sourcing and other mitigation strategies to maintain a strong value proposition for our customers and believe we remain well positioned to manage the impact that tariffs in effect as of the date of this filing are expected to have on our business.

As trade policy discussions are ongoing and related developments continue to evolve, we cannot predict with certainty their ultimate impact on our business in future periods, including our results of operations and cash flows.

For more information on these risks and uncertainties see Part I, Item 1A.

“Risk Facto r s .

Fiscal 2025 Form 10-K

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Net earnings $ 14,156 8.6 % $ 14,806 9.3 % $ 15,143 9.9 %

Fiscal 2024 includes 53 weeks.

Fiscal 2025 and fiscal 2023 include 52 weeks.

Fiscal 2024 includes 53 weeks.

Certain percentages may not sum to totals due to rounding.

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$90.56 $89.31 $90.07 1.4 % (0.8) %

Sales per retail square foot (2) (4)

$599.92 $604.55 $627.17 (0.8) % (3.6) %

Diluted earnings per share (4)

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(1) Does not include results from the 53 rd week of fiscal 2024.

(2) Customer transactions, average ticket, and sales per retail square foot measures do not include results from HD Supply or SRS.

(2) Customer transactions and average ticket measures do not include results from HD Supply or SRS (including GMS).

(3) Average ticket represents the average price paid per transaction and is used by management to monitor the performance of the Company, as it represents a primary driver in measuring sales performance.

(4) Sales per retail square foot represents sales divided by retail store square footage.

Sales per retail square foot is a measure of the efficiency of sales based on the total square footage of our stores and is used by management to monitor the performance of the Company’s retail operations as an indicator of the productivity of owned and leased square footage for these retail operations.

(5) The 53rd week of fiscal 2024 increased diluted earnings per share by approximately $0.30.

(4) The 53rd week of fiscal 2024 increased diluted earnings per share in fiscal 2024 by approximately $0.30.

FISCAL 2025 COMPARED TO FISCAL 2024

We assess our sales performance by evaluating both net sales and comparable sales.

Fiscal 2024 Form 10-K

Fiscal 2025 consisted of 52 weeks compared to 53 weeks in fiscal 2024.

For purposes of the following discussion, comparable sales, comparable customer transactions, and comparable average ticket are based upon the comparable 52-week period from fiscal 2024.

Net sales for fiscal 2025 increased $5.2 billion, or 3.2%, to $164.7 billion.

The increase in net s ales for fiscal 2024 was primarily driven by SRS, which contributed $6.4 billion of net sales during fiscal 2024, and incremental net sales of approximately $2.5 billion attributable to the additional week in fiscal 2024.

This increase in net sales was partially offset by the impact of a negative comparable sales environment, primarily driven by decreases in comparable customer transactions and comparable average ticket.

Online sales, which consist of sales generated online through our websites and mobile applications for products picked up at our stores or delivered to customer locations, represented 15.1% of net sales and increased by 6.6% during fiscal 2024 compared to fiscal 2023, including the online sales attributable to the additional week in fiscal 2024.

The increase in n et s ales for fiscal 2025 was primarily driven by SRS, which was acquired on June 18, 2024, and GMS, which was acquired on September 4, 2025.

In aggregate, these acquisitions contributed approximately $6.3 billion of incremental net sales during fiscal 2025.

Net sales also increased due to sales from new stores and the impact of a positive comparable sales environment.

These increases were partially offset by the additional week in fiscal 2024 which contributed approximately $2.5 billion in net sales in fiscal 2024.

Fiscal 2025 Form 10-K

Online sales represented 15.9% of net sales during fiscal 2025 and increased by 8.7% compared to fiscal 2024.

Calculated on a comparable week basis relative to fiscal 2024, online sales increased by 10.4%.

Online sales consist of sales of products generated through websites and mobile applications and does not include results from HD Supply or SRS (including GMS).

A stronger U.S.

dollar negatively impacted net sales by $298 million in fiscal 2024.

dollar compared to fiscal 2024 negatively impacted net sales by $307 million in fiscal 2025.

Comparable Sales.

Comparable sales is a measure that highlights the performance of our existing locations and websites by measuring the change in net sales for a period over the comparable prior period of equivalent length.

Comparable sales includes sales at all locations, physical and online, open greater than 52 weeks (including remodels and relocations) and excludes closed stores.

Retail stores become comparable on the Monday following their 52 nd week of operation.

Comparable sales includes sales at locations, physical and online, open greater than 52 weeks (including remodels and relocations) and excludes closed stores.

Acquisitions are typically included in comparable sales after they have been owned for more than 52 weeks.

Our comparable sales results for fiscal 2024 exclude the 53rd week and compare weeks 1 through 52 in fiscal 2024 to the 52-week period reported for fiscal 2023.

For our calculation of comparable sales in fiscal 2025, we compare weeks 1 through 52 in fiscal 2025 against weeks 2 through 53 in fiscal 2024.

Comparable sales is intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP.

The method of calculating comparable sales varies across the retail industry.

As a result, our method of calculating comparable sales may not be the same as similarly titled measures reported by other companies.

Total comparable sales decreased 1.8% in fiscal 2024, reflecting a 1.0% decrease in comparable customer transactions and a 0.9% decrease in comparable average ticket compared to fiscal 2023.

The decrease in comparable customer transactions primarily reflects the impact of heightened macroeconomic uncertainties and other macroeconomic factors, including the impacts of a persisting high interest rate environment pressuring home improvement demand.

The decrease in comparable average ticket primarily reflects price stabilization relative to last year, slightly offset by demand for new and innovative products.

For fiscal 2024 , our Power and Building Materials merchandising departments posted positive comparable sales compared to fiscal 2023.

All of our other merchandising departments posted negative comparable sales during fiscal 2024 compared to fiscal 2023.

Total comparable sales increased 0.3% in fiscal 2025, primarily reflecting a 1.4% increase in comparable average ticket, partially offset by a 1.0% decrease in comparable customer transactions compared to fiscal 2024.

Our comparable sales results reflect customer engagement with smaller home improvement projects, which was offset by the impact of continued macroeconomic uncertainties and other macroeconomic factors, including a persisting high interest rate environment, that continue to pressure broader home improvement demand.

For fiscal 2025 , our Storage & Organization, Electrical, Bath, Plumbing, Indoor Garden, Outdoor Garden, Kitchen & Blinds, Hardware, Power, Building Materials, and Appliances merchandising departments within our Primary segment posted positive comparable sales compared to fiscal 2024.

Our other merchandising departments within our Primary segment posted negative comparable sales during fiscal 2025 compared to fiscal 2024.

Gross profit increased $1.6 billion, or 2.9%, to $54.9 billion in fiscal 2025.

Gross profit as a percent of net sales, or gross profit margin, was 33.4% for both fiscal 2024 and fiscal 2023, and primarily reflected lower transportation costs and lower shrink within our Primary segment, offset by the inclusion of SRS in our consolidated results.

Gross profit as a percent of net sales, or gross profit margin, was 33.3% in fiscal 2025 compared to 33.4% in fiscal 2024.

The decrease in gross profit margin reflects the inclusion of SRS and GMS in our consolidated results, partially offset by lower shrink and certain supply chain benefits within our Primary segment.

Operating Expenses

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SG&A increased $2.0 billion, or 6.8%, to $30.7 billion in fiscal 2025.

As a percent of net sales, SG&A was 18.0% in fiscal 2024 compared to 17.4% in fiscal 2023, which primarily reflects higher payroll costs, deleverage from a negative comparable sales environment and lower legal-related benefits.

As a percent of net sales, SG&A was 18.6% in fiscal 2025 compared to 18.0% in fiscal 2024, which primarily reflects higher payroll and related costs in fiscal 2025 along with the impact of a non-recurring legal-related benefit recognized during fiscal 2024 within our Primary segment.

Depreciation and Amortization.

Depreciation and amortization increased $239 million, or 7.9%, to $3.3 billion in fiscal 2025.

As a percent of net sales, depreciation and amortization was 1.9% in fiscal 2024 compared to 1.8% in fiscal 2023 , primarily reflecting increased intangible asset amortization expense of $239 million, of which $218 million was related to SRS, as well as increased depreciation expense from ongoing investments in the business.

As a percent of net sales, depreciation and amortization was 2.0% in fiscal 2025 compared to 1.9% in fiscal 2024 , which primarily reflects increased intangible asset amortization expense resulting from our acquisitions of SRS and GMS.

Interest and Other, net

Interest and other, net increased $168 million, or 7.9%, to $2.3 billion in fiscal 2025.

As a percent of net sales, interest and other, net, was 1.3% in fiscal 2024 compared to 1.2% in fiscal 2023, primarily due to higher interest expense driven by higher long-term debt.

As a percentage of net sales, interest and other, net, was 1.4% in fiscal 2025 compared to 1.3% in fiscal 2024, primarily due to higher average long-term debt balances and lower interest income in fiscal 2025.

Provision for Income Taxes

Our combined effective income tax rate was 23.9% in fiscal 2025 compared to 23.7% in fiscal 2024.

Fiscal 2024 Form 10-K

Diluted Earnings per Share

Diluted earnings per share were $14.23 in fiscal 2025 compared to $14.91 in fiscal 2024.

The decrease in diluted earnings per share for fiscal 2024 was primarily driven by lower net earnings during fiscal 2024, partially offset by lower diluted shares.

The 53rd week increased diluted earnings per share by approximately $0.30 for fiscal 2024.

The decrease in diluted earnings per share for fiscal 2025 was primarily driven by lower net earnings during fiscal 2025.

The 53rd week of fiscal 2024 increased diluted earnings per share in fiscal 2024 by approximately $0.30.

Fiscal 2025 Form 10-K

NON-GAAP FINANCIAL MEASURES

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ROIC 25.7 % 31.3 % 36.7 %

Fiscal 2024 includes 53 weeks.

Fiscal 2025 and fiscal 2023 include 52 weeks.

Fiscal 2024 includes 53 weeks.

Consistent with our consolidated financial statements, periods presented only include operating results for acquisitions since their respective acquisition dates.

(1) Income tax adjustment is defined as operating income multiplied by our effective tax rate for the trailing twelve months.

(2) Fiscal 2024 only includes operating results for SRS since the acquisition date of June 18, 2024, consistent with our consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

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We believe that our current cash position, cash flow generated from operations, funds available from our commercial paper program, and access to the long-term debt capital markets should be sufficient not only for our operating requirements, any required debt payments, and satisfaction of other contractual obligations, but also to enable us to invest in the business, fund dividend payments, and fund any share repurchases through the next several fiscal years.

In addition, we believe we have the ability to obtain alternative sources of financing, if necessary.

In addition, we believe we have the ability to obtain alternative sources of financing, if necessary or appropriate.

Our material cash requirements include contractual and other obligations arising in the normal course of business.

These obligations primarily include long-term debt and related interest payments, operating and finance lease obligations, and purchase obligations.

Our contractual obligations include long-term debt and related interest payments, operating and finance lease obligations, and purchase obligations.

In addition to our cash requirements, we follow a disciplined approach to capital allocation.

This approach first prioritizes investing in the business, followed by paying dividends, with the intent of then returning excess cash to shareholders in the form of share repurchases.

In March 2024, we paused share repurchases in anticipation of the acquisition of SRS and do not have plans to resume share repurchases in fiscal 2025.

In March 2024, we paused share repurchases in connection with the SRS acquisition and do not have plans to resume share repurchases in fiscal 2026 as we seek to reduce our outstanding debt.

On July 4, 2025, the legislation commonly referred to as the One Big Beautiful Bill Act (the “OBBBA”) was signed into law in the U.S., which contains a broad range of tax provisions, including the allowance to expense 100% of the cost of qualified property and immediate expensing of domestic research and experimental expenditures.

The above mentioned provisions resulted in a reduction in our fiscal 2025 cash tax payments.

Fiscal 2025 Form 10-K

During fiscal 2025, we invested approximately $3.7 billion back into our business in the form of capital expenditures.

In line with our expectation of approximately 2.5% of fiscal 2025 net sales, we plan to invest approximately $4 billion back into our business in the form of capital expenditures in fiscal 2025, with investments across initiatives to improve the customer experience, including through technology and development of other differentiated capabilities, to continue to mature and build out Pro capabilities, as well as to build new stores.

However, we may adjust our capital expenditures to support the operations of the business, to enhance long-term strategic positioning, or in response to the economic environment, as necessary or appropriate.

We plan to invest approximately $4 billion back into our business in the form of capital expenditures in fiscal 2026, in line with our expectation of approximately 2.5% of projected fiscal 2026 net sales.

We expect to make these investments across initiatives supporting our strategy of driving our core and culture, including building new stores and maintaining existing stores, delivering a frictionless, interconnected experience, and winning with Pros.

However, as in the past, we may adjust our capital expenditures to support the operations of the business, to enhance long-term strategic positioning, or in response to the economic environment, as necessary or appropriate.

We may also utilize strategic acquisitions to help accelerate our strategic initiatives.

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As of February 1, 2026, approximately $11.7 billion of the $15.0 billion share repurchase authorization remained available.

During fiscal 2024, we made cash payments of $649 million for repurchases of our common stock through open market purchases, prior to pausing share repurchases in March 2024 as discussed above.

At the beginning of fiscal 2024, we had a commercial paper program that allowed for an aggregate of $5.0 billion in borrowings.

In connection with our program, we had back-up credit facilities with a consortium of banks for an aggregate of $5.0 billion in borrowings, which consisted of a five-year $3.5 billion credit facility scheduled to expire in July 2027 and a 364-day $1.5 billion credit facility scheduled to expire in July 2024.

In May 2024, we increased our commercial paper program from $5.0 billion to $19.5 billion in connection with the anticipated financing of the acquisition of SRS (see Note 13 to our consolidated financial statements for details regarding the SRS acquisition).

In May 2024, in connection with the increase in the commercial paper program, we entered into three additional back-up credit facilities that consisted of a 364-day $3.5 billion credit facility scheduled to expire in May 2025, a three-year $1.0 billion credit facility scheduled to expire in May 2027, and a 364-day $10.0 billion credit facility scheduled to expire in May 2025.

The $10.0 billion credit facility also provided that the commitments and any borrowings under that facility would be reduced by the amount of net cash proceeds we receive from any future debt issuance.

In June 2024, leading up to the acquisition of SRS on June 18, 2024, we raised commercial paper borrowings of over $15.0 billion to fund the transaction.

On June 25, 2024, we received the proceeds from the issuance of $10.0 billion of long-term debt, as further discussed below, and immediately used the proceeds to repay approximately $10.0 billion of these commercial paper borrowings.

On June 27, 2024, we terminated the $10.0 billion back-up credit facility, and subsequently reduced our commercial paper program from $19.5 billion to $9.5 billion.

In July 2024, we completed the renewal of our 364-day $1.5 billion credit facility, extending the maturity from July 2024 to July 2025.

In December 2024, we reduced our total credit facilities and concurrently reduced our commercial paper program, each by $2.5 billion.

This reduction included terminating the three-year $1.0 billion back-up credit facility that was scheduled to expire in May 2027 and reducing the aggregate commitments under the 364-day back-up credit facility that is scheduled to expire in May 2025 from $3.5 billion to $2.0 billion.

As of February 2, 2025, our commercial paper program allowed for an aggregate of $7.0 billion in borrowings and is supported by $7.0 billion of back-up credit facilities.

All of our short-term borrowings in fiscal 2024 were under our commercial paper program, and the maximum amount outstanding at any time was $15.3 billion.

At February 2, 2025, we had outstanding borrowings under our commercial paper program of $316 million with a weighted-average interest rate of 4.4%, we had no outstanding borrowings under our back-up credit facilities, and we were in compliance with all of the covenants contained in our credit facilities, none of which are expected to impact our liquidity or capital resources.

Fiscal 2024 Form 10-K

We also issue senior notes from time to time as part of our capital management strategy.

As discussed above, in June 2024, we issued $10.0 billion of senior notes in connection with the funding of the acquisition of SRS.

Separately, in February 2024, we repaid $1.1 billion of senior notes at maturity.

At the beginning of fiscal 2025, we had a commercial paper program that allowed for an aggregate of $7.0 billion in borrowings, and was supported by $7.0 billion of back-up credit facilities.

These back-up credit facilities consisted of a five-year $3.5 billion credit facility scheduled to expire in July 2027, a 364-day $2.0 billion credit facility scheduled to expire in May 2025, and a 364-day $1.5 billion credit facility scheduled to expire in July 2025.

In May 2025, we terminated all three back-up credit facility agreements and simultaneously entered into a new five-year $3.5 billion credit facility scheduled to expire in May 2030 and a new 364-day $3.5 billion credit facility scheduled to expire in May 2026.

In July 2025, we increased our commercial paper program by $4.0 billion in connection with the anticipated financing of the GMS acquisition (see Note 13 to our consolidated financial statements).

In July 2025, in connection with the increase in the commercial paper program, we also entered into a new three-year $3.0 billion back-up credit facility scheduled to expire in July 2028, and a new 364-day $1.0 billion back-up credit facility scheduled to expire in July 2026, as well as amended and restated our existing 364-day $3.5 billion credit facility to extend the maturity from May 2026 to July 2026.

In the aggregate, as of February 1, 2026, our commercial paper program allows for borrowings up to $11.0 billion and is supported by $11.0 billion of back-up credit facilities.

On September 4, 2025, we utilized approximately $2.0 billion of commercial paper borrowings, together with cash on hand, to fund the GMS acquisition.

These borrowings were subsequently repaid with the $2.0 billion of proceeds from our September 2025 senior notes issuance.

We also utilized commercial paper borrowings in fiscal 2025 to support general liquidity, including the repayment of senior note maturities.

During fiscal 2025, all of our short-term borrowings were under our commercial paper program, and the maximum amount outstanding during that period was $5.8 billion.

At February 1, 2026, we had outstanding borrowings under our commercial paper program of $4.5 billion with a weighted average interest rate of 3.7%.

At February 1, 2026, we had no outstanding borrowings under our back-up credit facilities, and we were in compliance with all of the covenants contained in our back-up credit facilities, none of which are expected to impact our liquidity or capital resources.

We also issue senior notes from time to time.

As discussed above, in September 2025, we issued $2.0 billion of senior notes, which were used to repay commercial paper borrowings used to fund the GMS acquisition.

Separately, during fiscal 2025, we repaid an aggregate of $4.25 billion of senior notes at maturity.

At February 1, 2026, we had an aggregate principal amount of senior notes outstanding of $48.8 billion, with $4.6 billion payable within 12 months.

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The indentures governing our senior notes do not generally limit our ability to incur additional indebtedness or require us to maintain financial ratios or specified levels of net worth or liquidity.

The indentures governing our notes contain various customary covenants;

however, none of the covenants are expected to impact our liquidity or capital resources.

The indentures governing our notes contain various covenants, none of which are expected to impact our liquidity or capital resources.

We were in compliance with all such covenants at February 1, 2026.

See Note 5 to our consolidated financial statements for further discussion of our debt arrangements.

We use operating and finance leases largely to obtain a portion of our real estate, including our stores, distribution centers, and store support centers.

Fiscal 2025 Form 10-K

We use operating and finance leases largely to obtain a portion of our real estate, including our stores, distribution centers, branches, and support centers.

At February 1, 2026, we had aggregate remaining lease payment obligations of $15.9 billion, with $2.2 billion payable within 12 months.

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At February 1, 2026, we had aggregate purchase obligations of $1.9 billion , with $1.2 billion paya ble within 12 months.

At February 2, 2025, we had aggregate liabilities for unrecognized tax benefits totaling $627 million, none of which are expected to be paid in the next 12 months.

At February 1, 2026, we had aggregate liabilities for unrecognized tax benefits totaling $559 million, nearly all of which are recorded as non-current liabilities.

The timing of payment, if any, associated with our long-term unrecognized tax benefit liabilities is unknown.

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CASH FLOWS SUMMARY

Fiscal 2024 Form 10-K

Operating Activities

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Net cash provided by operating activities decreased by $3.5 billion in fiscal 2025 compared to fiscal 2024, primarily due to changes in working capital.

Changes in working capital were primarily driven by more normalized inventory levels during fiscal 2024 compared to strategic reductions in inventory during fiscal 2023 within our Primary segment, partially offset by the timing of vendor payments and the deferral of our fourth quarter fiscal 2024 estimated federal tax payment to the first quarter of fiscal 2025 under automatic income tax relief provided by the IRS for taxpayers located in certain southeastern states.

Changes in working capital were primarily driven by the timing of vendor payments and increased inventories during fiscal 2025, along with the deferral of our fourth quarter fiscal 2024 estimated federal tax payment to the first quarter of fiscal 2025, resulting in fewer estimated tax payments in fiscal 2024 compared to fiscal 2025.

This was partially offset by a reduction to our fiscal 2025 cash tax payments resulting from the OBBBA.

Fiscal 2025 Form 10-K

Investing Activities

Net cash used in investing activities increased by $16.3 billion in fiscal 2024 compared to fiscal 2023, primarily due to higher cash payments for businesses acquired in fiscal 2024, driven by our acquisition of SRS.

Net cash used in investing activities decreased by $12.1 billion in fiscal 2025 compared to fiscal 2024, primarily resulting from higher cash paid for acquisitions during fiscal 2024 compared to fiscal 2025.

Financing Activities

Net cash used in financing activities in fiscal 2024 primarily reflected $8.9 billion of cash dividends paid, $1.5 billion of repayments of long-term debt, and $649 million of share repurchases prior to pausing share repurchases in March 2024, largely offset by approximately $10.0 billion of net proceeds from long-term debt and $316 million of proceeds from commercial paper borrowings, net of repayments.

Cash used in financing activities in fiscal 2023 primarily reflected $8.4 billion of cash dividends paid, $8.0 billion of share repurchases, and $1.3 billion of repayments of long-term debt, partially offset by $2.0 billion of net proceeds from long-term debt.

The overall decrease in cash flows used in financing activities during fiscal 2024 compared to fiscal 2023 totaled $14.7 billion and was predominantly attributable to the financing of the SRS acquisition and the pause of share repurchases.

Specifically, as discussed above, a combination of commercial paper borrowings, the $10.0 billion long-term debt issuance, along with increased cash on hand resulting from the pause of share repurchases, were utilized in connection with the SRS acquisition.

The commercial paper borrowings which were used specifically to fund the SRS acquisition were all subsequently repaid during the year.

Net cash used in financing activities in fiscal 2025 primarily reflected $9.2 billion of cash dividends paid and $5.0 billion of repayments of long-term debt, partially offset by $4.1 billion of proceeds from commercial paper borrowings, net of repayments, and $2.2 billion of net proceeds from long-term debt.

Net cash used in financing activities in fiscal 2024 primarily reflected $8.9 billion of cash dividends paid, $1.5 billion of repayments of long-term debt, and $649 million of share repurchases prior to pausing share repurchases in March 2024, largely offset by approximately $10.0 billion of net proceeds from long-term debt, which were used to finance the SRS acquisition, and $316 million of proceeds from commercial paper borrowings, net of repayments.

CRITICAL ACCOUNTING ESTIMATES

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For the valuation of intangible assets acquired in a business combination, we typically use an income approach.

Specifically, for the SRS acquisition, we used the multi-period excess earnings method to determine the estimated acquisition date fair values of the customer relationships intangible assets.

Specifically, we utilize the multi-period excess earnings method to determine the estimated acquisition date fair values of the customer relationships intangible assets.

The significant assumptions used to estimate the fair values of customer relationships included forecasted revenues, expected customer attrition rates, and the discount rate applied.

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Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the determination of the fair values of the customer relationships intangible assets acquired.

Fiscal 2024 Form 10-K

The excess of the purchase price over fair values of identifiable assets acquired and liabilities assumed is recorded as goodwill.

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MERCHANDISE INVENTORIES

We value the majority of our inventory under the retail inventory method, with the remainder of our inventories valued under a cost method, primarily the first-in, first-out method.

We value the majority of our inventory under the retail inventory method, with the remainder of our inventories valued under a cost method, primarily th e moving average cost and first-in, first-out methods.

Under the retail inventory method, inventories are stated at cost, which is determined by applying a cost-to-retail ratio to the retail value of inventories.

4 unchanged sentences

We determine markups and markdowns based on the consideration of a variety of factors such as current and anticipated demand, customer preferences and buying trends, age of the merchandise, and weather conditions.

Fiscal 2025 Form 10-K

We calculate shrink based on actual inventory losses identified as a result of physical inventory counts during each fiscal period and estimated inventory losses occurring between physical inventory counts.

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis