Retailer Tariff Refund Earnings Are Muddying Comparisons for Years to Come

Retailer tariff refund earnings reports this season have delivered one message clearly: the way companies disclose, deploy, and account for their IEEPA repayments varies so widely that investors face a genuine analytical challenge in reading underlying business performance. The confusion is not cosmetic. It has real implications for forward comparisons and margin modeling.

How Retailers Handled Their Tariff Refund Earnings Differently

Start with Home Depot (HD). The company received $730 million in IEEPA tariff refunds around the end of June, according to its Q2 2026 10-Q filed with the SEC. Of that total, $685 million was recognized as a reduction of cost of goods sold; the remaining $45 million sits in inventory and will flow through earnings as that stock sells.

The accounting treatment matters. Fortune reported the refund produced a 145 basis point gross margin benefit in Q2. Yet per the Q2 2026 earnings call transcript, HD’s reported gross margin landed at 33.7%, only about 25 basis points above the prior year, because rising resin, metals, fuel, and energy costs largely consumed the refund benefit. CFO Richard McPhail said the funds represent “the vast majority” of what the company expected to receive.

Walmart took a comparable approach. CFO John David Rainey told CNBC the company was eligible for roughly $2.9 billion in refunds and has received all but just under $100 million of that total. Walmart U.S. gross profit grew 1.6% from the boost, and Rainey confirmed the company plans to use those funds to lower prices, with the consumer impact hitting in the fiscal third quarter.

TJX Companies applied its $331 million in refunds to Q2 cost of sales. Target (TGT) classified its $994 million pretax benefit as a reduction of Cost of Sales as well, per its official Q2 2026 press release. That refund delivered 3.7 percentage points of benefit to Target’s gross margin rate and operating income margin rate for the quarter, driving GAAP EPS to $4.11 versus $2.05 in the prior year. Stripping out the refund, Target’s underlying gross margin still improved roughly 100 basis points and operating margin rose approximately 70 basis points year over year, according to Yahoo Finance.

Not everyone routed the money to prices. Lowe’s CEO Marvin Ellison told CNBC the company received roughly $80 million in repayments and used those funds to deliver an 11-cent boost to Q2 EPS, explicitly choosing shareholder returns over consumer price cuts. “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. Kohl’s split the difference, putting $100 million of its refunds into gross margin while directing the rest toward inventory investment.

The Comparison Problem Investors Need to Model

Bryan Eshelman, a managing director in the retail practice at AlixPartners, framed the core investor challenge plainly: “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.” The one-time boosts inflate the Q2 2026 base against which fiscal 2027 results will be measured.

Target’s guidance illustrates the distortion in real terms. CNBC reported Target raised its full fiscal-year 2026 net sales growth guidance to approximately 5%, up one percentage point. Full-year EPS including tariff refunds is now guided to $9.90–$10.90; strip the refund out and the underlying range is $8.25–$9.25, compared with prior guidance of $7.50–$8.50. That $1.65 per share spread is the number investors need to carry forward into their 2027 comp models.

There is a further structural wrinkle. Eshelman noted that retailers are not always the importer of record, meaning some refunds flow to U.S. manufacturers rather than the retailer itself. Internal record-keeping also complicates attribution: matching a rebate to a product already sold is not a clean exercise, which partly explains why disclosure quality varies so much across the sector.

The bull read is that underlying retail operations, at least at Home Depot and Target, held up reasonably well even after stripping the refund benefit. The bear read is that the IEEPA tariff regime has now been replaced by a new Section 301 framework targeting forced-labor-linked imports, per Fortune’s reporting, meaning cost pressures are not behind these retailers and the refund tailwind is finished.

Eshelman’s advice to investors is the right call: treat the refund as a line-item adjustment, not an operating result, and reprice your 2027 expectations accordingly. The retailers that passed savings to consumers may have bought goodwill; those that took it to the bottom line have a harder comparison next year and no consumer loyalty to show for it.