A Target store in Los Angeles, California, Aug. 19, 2026.
Justin Sullivan | Getty Images
Tariff refunds have muddied retailers’ earnings reports in recent weeks as Wall Street struggles to parse through the confusion.
Most major retailers applied for refunds after the Supreme Court ruled in February that the International Emergency Economic Powers Act did not authorize President Donald Trump to impose the tariffs. That money began flowing in during the second quarter, as retailers saw major boosts to their profits.
For the most part, those returns have helped companies offset cost inflation and prop up margins, especially as they face cost pressures like the rising price of fuel. But the way those retailers have reported those refunds and incorporated them into their earnings has differed greatly, leading to confusion about how to read the strength of their results and their future outlooks.
“These trails aren’t always clean in terms of finding the right way to apply, in a fair sense, the rebate to prices,” Bryan Eshelman, a managing director in the retail practice at consulting firm AlixPartners, told CNBC.
Eshelman said there are two factors at play with how retailers handled the refunds. Determining where the extra money goes depends largely on the retailer’s price position in the market, where more value-driven companies are likely to apply funds to keep prices lower and “proclaim that to the marketplace,” he said.
The tariff refund situation has been further complicated for companies depending on whether they are the importer of record for the products, which determines who gets the refunds, Eshelman said. Much of what’s sold in stores isn’t necessarily imported by the retailer, or U.S. manufacturers may be the ones receiving rebates for raw materials.
“There’s also just the reality of record-keeping internal to retailers and whether or not they easily have a way to attribute the rebate directly back to a product that was already sold,” he said. “It’s not a simple task.”
Price cuts
Shopping carts at a Home Depot store in New York, Feb. 25, 2025.
Jeenah Moon | Reuters
Some retailers chose to explicitly say they were dedicating their extra cash to lowering prices on products for consumers.
Home Depot saw its gross margin increase 0.3% in its fiscal second quarter compared with the prior year, driven by its tariff refund. The company said it received $730 million in tariff refunds during the period, using roughly $685 million of that money to reduce the cost of goods sold.
Chief Financial Officer Richard McPhail said on a call with analysts that those funds represent “the vast majority” of what the company was expecting to receive.
Walmart took a similar route. CFO John David Rainey told CNBC last week that the company was eligible to receive roughly $2.9 billion in tariff refunds and has yet to get back just under $100 million of that total. Its gross profit for Walmart U.S. grew 1.6% from the boost.
He told CNBC that the company plans to use those funds to lower prices for consumers, and shoppers and investors will see the impact during its current fiscal third quarter.
TJX Cos. also said it used its $331 million in tariff refunds to benefit its second-quarter cost of sales.
Eshelman said low-price operators likely have a “strategic reason” to apply refunds to prices, though enticing consumers with value has become harder in an increasingly crowded retail space.
“At the end of the day, a product is worth what somebody’s willing to pay for it, and there is a lot of choice in this marketplace,” Eshelman said.
Margin boosts
Lowe’s, on the other hand, said its tariff refund gave it an 11-cent boost to its earnings per share for the second quarter. CEO Marvin Ellison told CNBC the company received roughly $80 million in repayments and did not plan to use tariff dollars to lower prices, unlike some of its competitors.
“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.
Ellison added on a call with analysts that the company took “the right planned steps to drive profitability” with its windfall.
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, and a $994 million pretax benefit to its second-quarter gross margin and operating income.
“We have, and will continue, to invest in price to ensure our guests are getting tremendous value each and every time they visit us at Target,” CFO Jim Lee said on a call with reporters.
Kohl’s CEO Michael Bender told CNBC on Wednesday that the company put $100 million of the refunds it has received into its gross margin in the second quarter and plans to use the rest to invest in deeper inventory.
“All of [the uses of the repayments] have to have a return, so we’re not just going to be throwing money out and saying, ‘I hope this works,’ but we’re very disciplined about it,” Bender said.
AlixPartners’ Eshelman said the one-time tariff boosts are also going to have implications for future quarters, especially as retailers forecast a higher-than-expected tariff rate and Trump’s tariff policies change by the day.
Wall Street and Main Street
The extra boosts to earnings this quarter meant that comparisons to last year’s results were skewed in retailers’ favor in many cases.
But on the other side of that coin, those windfalls will also set a higher bar for comparisons next year due to the inflated numbers this season.
“It’s an unfair positive comparison to last year’s quarter, and it’s going to be an unfair negative comparison to next year’s quarter,” Eshelman said. “I think investors need to just, where it’s material, make that adjustment in their expectations.”
For shoppers, Eshelman said it’s likely consumers won’t be able to quantify if the price cuts are truly proportionate to the refunds that the retailers received. Inflationary pressures like rising fuel prices, among other factors, can also affect those prices.
“How does a consumer know what percentage of a price increase was tariff-related versus diesel or fuel related?” he said. “How does a consumer know that the price went down commensurate with the level of rebate?”
Still, a silver lining from the tariff situation may be that retailers are catching on to needing to have more diverse and agile supply chains.
And at the end of the day, Eshelman said, the tariff calculus comes down to how retailers want their core customer to perceive them.
“To me, a lot of this is marketing,” he said. “It’s trying to create a price perception with consumers, which is an important part of any retailer’s job, and I find it hard to untangle that.”
Read the original article here