The refunds began flowing during the fiscal second quarter after the court ruled the International Emergency Economic Powers Act did not authorize the tariffs. Most large retailers had applied for repayments earlier this year, and the cash arrived as companies faced rising cost pressures, particularly from fuel. How each retailer accounted for that money has muddied earnings comparisons and left Wall Street parsing uneven results.
Price-Driven Retailers Push Refunds to Shoppers
Home Depot received $730 million in tariff refunds during its fiscal second quarter and applied roughly $685 million to reduce cost of goods sold. The move drove a 0.3% increase in gross margin year over year. Chief Financial Officer Richard McPhail told analysts the funds represent “the vast majority” of what the company expected to recover.
Walmart took a parallel path. CFO John David Rainey said the company is eligible for roughly $2.9 billion in tariff refunds, with just under $100 million still outstanding. The boost lifted Walmart U.S. gross profit by 1.6%, and Rainey said shoppers and investors will see the impact of lower prices during the current fiscal third quarter.
TJX Cos. reported $331 million in tariff refunds and directed the money to benefit its second-quarter cost of sales. Bryan Eshelman, a managing director in the retail practice at AlixPartners, said low-price operators have a strategic reason to apply refunds toward pricing, though winning consumers on value has grown harder in a crowded market.
Margin-Focused Retailers Keep the Cash
Lowe’s charted a different course. The company received roughly $80 million in repayments, producing an 11-cent boost to second-quarter earnings per share. CEO Marvin Ellison told CNBC the company does not plan to use tariff dollars to cut prices, unlike some 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,” Ellison said.
Target did not explicitly state whether tariff refunds would fund price reductions, though the retailer said it lowered prices on more than 10,000 items during the quarter. The refunds delivered a $752 million boost to net earnings, or $1.65 per share, and a $994 million pretax benefit to second-quarter gross margin and operating income. CFO Jim Lee told reporters the company will “continue to invest in price to ensure our guests are getting tremendous value.”
Kohl’s placed $100 million of its refunds into gross margin and plans to use the remainder to invest in deeper inventory. CEO Michael Bender emphasized discipline, saying each use of the repayments “has to have a return.”
Accounting Complexity Drives Divergence
Eshelman said several factors explain why retailers handled the refunds so differently. A company’s price position in the market largely determines whether it applies funds to lower prices or to margins. Whether the retailer is the importer of record also matters, since much of what stores sell is imported by third parties or U.S. manufacturers receiving rebates on raw materials.
Internal record-keeping adds another layer. Retailers may not easily trace a rebate back to a product already sold, Eshelman said, calling attribution “not a simple task.” That complexity has made it harder for analysts to compare results across companies and assess the true strength of quarterly performance.
What Happens Next
The one-time tariff boosts will distort comparisons in both directions. This quarter’s results benefited from an unfair positive comparison against last year, but next year retailers face an inflated baseline that will make year-over-year growth harder to achieve. Eshelman urged investors to adjust expectations where the refund impact is material.
For consumers, quantifying whether price cuts are proportionate to the refunds is likely impossible. Inflationary pressures such as rising fuel costs also influence shelf prices, making it difficult to separate tariff-related changes from other cost drivers. Still, the episode may accelerate retailers’ push toward more diverse and agile supply chains as tariff policy continues to shift. Ultimately, Eshelman said, the tariff calculus comes down to marketing — how each retailer wants its core customer to perceive its value.
— Nadia Okonkwo, business desk, AXO News