US retailers use tariff refunds differently
U.S. retail chains account for tariff refunds differently in their financial reporting: some direct the funds toward lowering prices, while others use them to support margins and profitability. As CNBC Top News reports, most major retailers filed for reimbursement following the U.S. Supreme Court’s February ruling. The court ruled that the International Emergency Economic Powers Act did not grant President Donald Trump the authority to impose these tariffs.
The funds began arriving in the second quarter and significantly boosted companies’ profits. They also helped partially offset rising costs, including higher fuel prices. At the same time, the different ways refunds were reflected in reporting made it more difficult for investors to assess retailers’ quarterly results and forecasts.
The situation is also complicated by who is the official importer of the goods, as this determines the recipient of the reimbursement. Some goods sold in stores may be imported not by the retailers themselves, while U.S. manufacturers may receive compensation for raw materials.
Lower prices for shoppers
Home Depot received $730 million in reimbursements in the second fiscal quarter and used approximately $685 million to reduce the cost of goods sold. The company’s gross margin increased by 0.3% compared with the previous year. According to Chief Financial Officer John David Rainey, Walmart is entitled to about $2.9 billion in tariff refunds, of which the company has yet to receive just under $100 million. Walmart plans to use these funds to lower prices in the current third fiscal quarter.
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TJX Cos. said that $331 million in tariff refunds had a positive impact on its cost of sales in the second quarter. Brian Eshelman, managing director of AlixPartners’ retail practice, noted that low-price companies may have strategic reasons to direct such funds toward pricing policy.
Margins and inventory
Lowe’s, by contrast, said tariff refunds added 11 cents to earnings per share in the second quarter. Chief Executive Officer Marvin Ellison said the company received about $80 million and does not plan to lower prices using these funds, seeking to ensure profitability for shareholders.
Target did not specify whether it is directing reimbursements toward lower prices, although it reduced prices on more than 10,000 items in the second quarter. The company said tariff refunds increased its net income by $752 million, or $1.65 per share, and provided a pre-tax benefit of $994 million to gross margin and operating income. Kohl’s included $100 million in received refunds in gross margin and plans to use the remainder to increase inventory.
Eshelman cautioned that a one-time increase in profits improves comparisons with last year’s results, but also raises the comparison base for next year. In his view, it will be difficult for shoppers to determine to what extent price changes are linked specifically to tariff refunds and to what extent they are related to other costs, including fuel prices.
