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."
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.
