August 19, 2026 at a Target store in Los Angeles, California.
Justin Sullivan | Getty Images
Tariff refunds have disrupted retailers’ earnings reports in recent weeks as Wall Street struggles to make sense of the confusion.
Most major retailers filed for refunds after the Supreme Court ruled in February that the International Emergency Economic Powers Act did not give President Donald Trump the authority to impose tariffs. That money started flowing in in the second quarter as the retailer saw a significant increase in profits.
In most cases, these revenues have helped offset cost inflation and support profit margins, especially for companies facing cost pressures such as rising fuel prices. But the way these retailers report refunds and factor them into their earnings varies widely, leading to confusion about how to read the strength of their performance and future prospects.
“It’s not always a smooth road in terms of finding the right way to apply price rebates in a fair sense,” Brian Eshelman, managing director of retail practice at consulting firm AlixPartners, told CNBC.
Eshelman said there are two factors at play in how retailers respond to refunds. Where the surplus is spent depends largely on the retailer’s price position in the market, with more value-oriented companies likely to spend money to keep prices low and “declare that to the market,” he said.
Eshelman said the duty refund situation for companies is further complicated by whether the company is the importer of record for the product, which determines who receives the refund. Much of what is sold in stores is not necessarily imported by retailers, and U.S. manufacturers may receive rebates on raw materials.
“There’s also the question of internal record-keeping realities for retailers and whether there’s an easy way to attribute rebates directly to items already sold,” he said. “It’s not an easy job.”
price reduction
New York home improvement store shopping cart, February 25, 2025.
Gina Moon | Reuters
Some retailers have chosen to state that they will use the extra cash to lower product prices for consumers.
home depot Second quarter gross margin increased 0.3% year over year due to customs duty refunds. The company announced that it received $730 million in customs duty refunds during the period, approximately $685 million of which was used to reduce the cost of goods sold.
Chief Financial Officer Richard MacPhail said on a conference call with analysts that these funds represent the “vast majority” of the funding the company expected to receive.
walmart I took a similar route. CFO John David Rainey told CNBC last week that the company is eligible for about $2.9 billion in tariff refunds, but has yet to repay just under $100 million of that. Walmart US’s gross profit increased by 1.6% due to the boost.
He told CNBC that the company will use these funds to lower prices for consumers, and that shoppers and investors will see the impact during the third quarter of this fiscal year.
TJX Co., Ltd. The company also stated that it used $331 million in customs duty refunds to improve its cost of sales in the second quarter.
Mr Eshelman said low-cost operators likely had a “strategic reason” to apply rebates to their prices, but an increasingly crowded retail landscape was making it difficult to attract valued consumers.
“At the end of the day, a product is worth what someone is willing to pay for it, and there are a lot of choices in this market,” Eshelman said.
margin boost
lowe’sHowever, the company said that tariff refunds boosted earnings per share by 11 cents in the second quarter. Chief Executive Officer Marvin Ellison told CNBC that the company has received about $80 million in repayments and, unlike some competitors, does not plan to use the tariffs to lower prices.
“We feel strongly that we want to provide high returns to our shareholders and we do not want to be subject to any aggressive pricing,” he said.
Ellison added on a conference call with analysts that the company “has taken well-planned steps to increase profitability” with the windfall.
target The company also declined to say whether it used the tariff refunds to lower prices, but said it cut prices on more than 10,000 items in the second quarter. Still, the company said the tariff refund boosted net income by $752 million, or $1.65 per share, and gross and operating profit increased by $994 million before taxes in the second quarter.
“We have made, and will continue to make, price investments to ensure our guests get great value every time they visit a Target,” Chief Financial Officer Jim Lee said on a call with reporters.
kohls Chief Executive Officer Michael Bender told CNBC on Wednesday that the company plans to use $100 million of the refunds it receives toward second-quarter gross profit and use the rest to invest in deeper inventory.
“Everything (where the repayments are used) has to have a return, so we’re not just going to throw money at it and say, ‘I hope this works out,’ but we’re very disciplined about it,” Bender said.
AlixPartners’ Eshelman said the one-time tariff hike would have an impact in future quarters, especially as retailers expected higher-than-expected tariffs and President Trump’s tariff policy changes daily.
wall street and main street
Further boosts in earnings this quarter meant that comparisons with last year’s results were often skewed in the retailer’s favor.
But on the other hand, with this season’s numbers inflated, these windfalls will set the bar for next year’s comparisons even higher.
“This is an unfair positive comparison to last year’s quarter and an unfair negative comparison to next year’s quarter,” Eshelman said. “I think investors need to adjust their expectations if that matters.”
Eshelman told shoppers that consumers likely won’t be able to quantify whether the price reduction is truly proportional to the refund the retailer receives. Inflationary pressures, such as rising fuel prices, can also affect these prices.
“How will consumers know what percentage of the price increase is tariff-related or diesel or fuel-related?” he said. “How will the consumer know that the price has decreased based on the level of the rebate?”
Still, a silver lining from the tariff situation may be that retailers are recognizing the need for more diverse and agile supply chains.
And at the end of the day, Eshelman said, the tariff calculation depends on how the retailer wants to be perceived by its key customers.
“For me, a lot of this is marketing,” he said. “We’re trying to create price awareness for consumers, which is an important part of a retailer’s job, but I think it’s difficult to untangle that.”
