Tariff refunds have become a recurring theme in retailer earnings reports in recent weeks, as companies disclose large cash infusions tied to a Supreme Court ruling on presidential tariff authority — while Wall Street grapples with how to interpret the numbers.
The Supreme Court ruled in February that the International Emergency Economic Powers Act did not authorize President Donald Trump to impose the tariffs. Most major retailers subsequently applied for refunds, and many began receiving that money during the second quarter, lifting profits across the sector.
But the ways retailers are reporting, and deploying, those funds differ sharply, leaving investors to untangle what is real operational strength and what is a one-time boost.
Two paths for the cash
According to Bryan Eshelman, a managing director in the retail practice at consulting firm AlixPartners, a retailer’s market position largely determines where the refund money goes. More value-driven chains are apt to steer it into lower prices, while others may prioritize margins or reinvestment.
Eshelman noted that whether a company is the importer of record for its products complicates matters further, since that determines who actually receives a refund. Much of what retailers sell is not imported by the retailers themselves, he said, and U.S. manufacturers may instead collect rebates on 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.”
Home Depot and Walmart lean into price cuts
Home Depot used the bulk of its refund to lower the cost of goods sold. The company received $730 million in tariff refunds during its fiscal second quarter and deployed roughly $685 million of that to reduce product costs, which helped lift its gross margin by 0.3% compared with the prior year.
CFO Richard McPhail told analysts that those funds represent “the vast majority” of what Home Depot expects to receive.
Walmart took a similar tack. CFO John David Rainey told CNBC last week that the company is eligible for roughly $2.9 billion in tariff refunds and has yet to receive just under $100 million of that total. The resulting boost lifted Walmart U.S. gross profit by 1.6%.
Walmart said it plans to pass those funds along through lower consumer prices, with the impact expected to show up during its current fiscal third quarter. TJX Cos. likewise applied its $331 million in refunds to benefit its second-quarter cost of sales.
Eshelman suggested that low-price operators likely have strategic reasons for applying refunds to prices, though making value stand out is getting harder in a crowded market.
“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,” he said.
Lowe’s, Target, Kohl’s take different routes
Lowe’s, by contrast, said its tariff refund delivered an 11-cent lift to second-quarter earnings per share. CEO Marvin Ellison told CNBC the company received roughly $80 million in repayments and does not intend to use the money 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 say whether its refunds are funding price reductions, though the retailer noted it lowered prices on more than 10,000 items during the quarter. Tariff refunds provided a $752 million boost to net earnings, or $1.65 per share, and a $994 million pretax benefit to gross margin and operating income, according to the company.
“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 told reporters.
Kohl’s, meanwhile, put $100 million of its refunds into gross margin in the second quarter and plans to use the remainder to invest in deeper inventory, CEO Michael Bender told CNBC.
“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.
One-time bumps complicate comparisons
The windfalls are also muddying comparisons. Eshelman warned that the extra earnings this quarter make prior-year results look weaker by contrast, while the inflated figures will set a tougher bar for next year’s comparisons.
“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,” he said. “I think investors need to just, where it’s material, make that adjustment in their expectations.”
For shoppers, Eshelman said it will be difficult to tell whether price cuts truly reflect the size of the refunds, especially with other cost pressures like rising fuel prices in the mix.
“How does a consumer know what percentage of a price increase was tariff-related versus diesel or fuel related?” he asked. “How does a consumer know that the price went down commensurate with the level of rebate?”
Despite the confusion, Eshelman said one silver lining may be that retailers are now paying more attention to building diverse, agile supply chains.
“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.”
Source: www.cnbc.com — https://www.cnbc.com/2026/08/30/trump-tariff-refunds-walmart-home-depot-target.html
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