The 'Choose Your Own Adventure' Earnings: Why Retailers Are Handling Tariff Refunds So Differently

 

The 'Choose Your Own Adventure' Earnings: Why Retailers Are Handling Tariff Refunds So Differently

## The $166 Billion Distortion

Last quarter, the retail sector delivered some of the best headline numbers in recent memory. Walmart beat. Home Depot beat. Target beat. Abercrombie & Fitch reported a 114% earnings surprise. Investors cheered. Stocks soared.

But here's the catch: a meaningful share of those profits didn't come from selling more to shoppers. They came from a Supreme Court decision. And the way retailers are handling that windfall is creating one of the most confusing earnings seasons in years.

## The Supreme Court's Surprise

On February 20, 2026, the Supreme Court struck down President Trump's IEEPA-era tariffs as unlawful, triggering one of the largest corporate cash windfalls in recent memory. Roughly $166 billion had been collected from some 330,000 importers. By the end of July, approximately $100 billion had been refunded .

Retailers are booking those refunds now. The amounts are enormous and wildly uneven .

## The "Choose Your Own Adventure" Divergence

Bryan Eshelman, a managing director in the retail practice at consulting firm AlixPartners, put it simply: "These trails aren't always clean in terms of finding the right way to apply, in a fair sense, the rebate to prices" .

The divergence comes down to two factors :

1. **Price Positioning**: Value-driven companies are more likely to apply funds to keep prices lower and "proclaim that to the marketplace." Premium retailers often use the windfall differently.

2. **Importer Status**: Much of what's sold in stores isn't necessarily imported by the retailer. U.S. manufacturers may be the ones receiving rebates for raw materials, making the refund trail more complex.

## The Two Paths: Price Cuts vs. Margin Boosts

### Path 1: Passing It On

**Walmart** took the most aggressive approach. CFO John David Rainey told CNBC the company was eligible to receive roughly $2.9 billion in tariff refunds — the largest disclosed by any U.S. company . The company has received "substantially all" of that amount and has begun investing the capital into "customer experience and price leadership" . Rainey noted that the company's Q3 guidance "reflects the continued impact of pricing actions taken in Q2 alongside continued prioritization of tariff refunds and the price investment" . CEO John W. Furner said on an earnings call, "Our intent was to deploy much of that back into price, and that's what we're doing" .

**Home Depot** received $730 million in tariff refunds and used roughly $685 million of that money to reduce the cost of goods sold . CFO Richard McPhail said on a call with analysts that those funds represent "the vast majority" of what the company was expecting to receive . All told, Home Depot is using the reimbursements to fully offset unplanned cost pressure on fuel, energy, and product inputs .

**TJX Cos.** also said it used its $331 million in tariff refunds to benefit its second-quarter cost of sales .

### Path 2: Keeping It

**Lowe's** took a different approach. CEO Marvin Ellison told CNBC the company received roughly $80 million in repayments and did not plan to use tariff dollars to lower prices . "We feel strongly that we want to deliver strong profitability for our shareholders and make sure that we don't follow any aggressive pricing action," he said . The refund gave Lowe's an 11-cent boost to its earnings per share .

**Target** also did not explicitly say whether the company was using its tariff refunds to cut prices, though the company said it lowered prices on more than 10,000 items in the second quarter . Still, the retailer said tariff refunds gave it a $752 million boost to net earnings, or $1.65 per share .

## The Accounting Maze

Why can't retailers just apply refunds uniformly? The answer lies in a complex web of accounting rules.

Under U.S. GAAP, tariff refunds are typically classified as gain contingencies under ASC 450. According to accounting experts, these generally cannot be recognized until they are "realized or virtually certain" . However, if a company originally expensed the tariff costs through cost of goods sold, it may be able to recognize a refund receivable when recovery is "probable" under the loss recovery model (ASC 410-30) .

The treatment also depends on where the tariff costs originally landed :

- If the tariff was expensed through COGS as inventory sold, the refund reduces COGS in the period of recognition.

- If the tariff was capitalized into inventory still on hand, the refund reduces the inventory's carrying value.

- If the tariff was capitalized into fixed assets, the refund reduces the asset's tax basis.

This is why some retailers like Walmart and Home Depot recorded refunds as a reduction in cost of goods sold, while others like Target emphasized adjusted EPS excluding tariff refunds .

## The Consumer Takeaway: Who Gets the Money?

The divergence is particularly significant because consumers bore the brunt of the original tariffs. The New York Federal Reserve reported that approximately 90% of the tariffs' "economic burden" was felt by U.S. firms and consumers . Yet many companies are largely keeping the windfalls for themselves .

The Yale Budget Lab estimates the Trump administration's tariff policy is raising each household's annual costs by approximately $1,100 per year as of August .

## What Investors Should Watch

The tariff refund situation has "muddied retailers' earnings reports" , making cross-retailer comparisons "close to meaningless unless you normalize for it" .

To find the real winners, analysts recommend :

1. **Focus on comp sales and traffic** instead of headline EPS and revenue.

2. **Screen out earnings juiced by tariff refunds** to understand underlying performance.

3. **Parse true operational improvement from one-time windfalls** .

**Dollar General** provided the cleanest example. The company earned $2.48 per share in the period, and management estimated that only 25 cents of that figure came from tariff refunds . Removing that boost leaves EPS of $2.23 per share, still well above expectations .

**Abercrombie & Fitch** deserved credit for the most transparent disclosure of the season. While the stock soared more than 30% on a 114% beat, management specified that the IEEPA refund contributed approximately $100 million pre-tax, or $1.75 per diluted share . Back that out, and underlying EPS was roughly $2.42—still a genuine beat of about 24%, but a fundamentally different number .

**Williams-Sonoma** stood out as the cleanest performer. Management raised full-year margin guidance and said it did not factor in any tariff refunds . Comparable brand revenue rose 6.2%, accelerating from 4.8% last quarter .

## Frequently Asked Questions (FAQs)

### 1. Why are retailers handling tariff refunds so differently?

Retailers' approaches depend on their price position in the market, whether they are the importer of record, and the accounting treatment of their original tariff costs. Value-driven retailers like Walmart are more likely to pass refunds on to consumers, while others use the windfall to boost margins .

### 2. Which retailers are using tariff refunds to lower prices?

Walmart has been the most explicit, stating it plans to deploy the majority of its $2.9 billion refund back into prices. Home Depot and TJX have used refunds to reduce cost of goods sold . Amazon and Best Buy have also suggested they will pass some savings to consumers .

### 3. Which retailers are keeping the refunds?

Lowe's has stated it does not plan to use tariff dollars to lower prices, instead using the refund to boost profitability . Target has not explicitly committed to price cuts with its refund, though it did lower prices on thousands of items .

### 4. How much did retailers receive in tariff refunds?

Walmart received the largest disclosed amount at $2.9 billion. Target reported $994 million. Home Depot received $730 million. TJX received $331 million. Lowe's received $80 million. Ross received $253 million .

### 5. Why can't consumers get tariff refunds directly?

While consumers have filed class-action lawsuits against companies receiving tariff refunds, none have finished playing out in court yet. Americans have little recourse to recover tariff funds if companies don't pass on refunds voluntarily .

### 6. How are tariff refunds accounted for in earnings?

It depends. If a company expensed the tariff costs through COGS, it may recognize the refund as a COGS reduction . If the tariff was capitalized into inventory, the refund may reduce inventory carrying value . The accounting treatment varies based on when the goods were sold .

## The Bottom Line

The tariff refund bonanza has turned this earnings season into a "choose your own adventure" story . Some retailers are passing the savings to consumers. Others are keeping it for shareholders. The accounting is messy. The comparisons are confusing.

But one thing is clear: the consumer ultimately paid those tariffs . And whether they'll get any of that money back depends entirely on which retailer they're shopping with.