Twelve days ago we wrote that the tariff-refund distortion running through Q2 earnings had a second act, and named the thing to watch for: companies that let a refund flatter a quarter and then raise full-year guidance off the inflated base. Dillard's was the responsible version — it told investors plainly that it expects no additional significant refunds.
Abercrombie & Fitch is the other version, and it is a big one.
The quarter first. EPS of $4.17 against a consensus near $1.98. Inside it, roughly $100 million of refunded IEEPA duties sitting in cost of sales — worth about $1.75 a share and nearly 790 basis points of operating margin. Net sales rose about 5% to roughly $1.3 billion, a fifteenth consecutive quarter of growth, with management saying the underlying business ran about 200 basis points ahead of plan. Strip the refund and it is a good quarter at a well-run retailer. It is not a 110% beat.
Our take: The refund is not the story any more — everybody has one. The story is what companies do with it, and Abercrombie just did the aggressive thing. Full-year operating margin guidance went to 14.5–15% from 12–12.5%. That is roughly 250 basis points of annual margin added. A single-quarter benefit of 790 basis points is worth on the order of 200 basis points spread across a full year. Do that subtraction and most of the margin raise is the refund, not the business. The sales guide moved far less — from a 3–5% range to about 5%, which is a tightening toward the top of an existing range rather than a step change. One of those two revisions repeats next year. The other does not.
Why this one matters more than the last six
Every refund disclosure so far has been backward-looking: here is what landed, here is the basis-point effect, move on. Guidance is forward-looking. Once a company embeds a one-off in a full-year number, three things follow automatically.
Analyst models get rebuilt on the higher margin. The stock re-rates against it. And in four quarters the company laps a period inflated by something that happens once, against a full-year framework that assumed it was structural. The 2027 explanation is written the day the guidance goes out.
To be fair to Abercrombie: EPS guidance of $13.10–$13.60, up from $10.20–$11.00, is a raise of about $2.75 at the midpoint, and roughly $1.75 of that is the refund already banked in Q2. The company is not hiding the arithmetic — the refund is disclosed and quantified. It simply has not separated the durable half of the raise from the one-time half, and the headline number does not do it for you.
The queue is still growing
Customs and Border Protection has now accepted roughly $128.7 billion in potential and certified refunds for processing, up from the $100 billion it reported as sent for disbursement in early August. More of these quarters are coming, which means more of these guidance decisions are coming.
And the money is still landing in the wrong pocket, legally speaking. Refunds go to the importer of record. A Federal Reserve study found US businesses and consumers absorbed close to 90% of the extra IEEPA costs, and the Tax Foundation put the hit to the average family at roughly $1,000 in 2025. None of those households imported anything. The unjust-enrichment suits already filed against a long list of consumer brands are the predictable consequence — which makes a refund embedded in forward guidance a slightly odd thing to spend twice.
What to watch
- The two-part raise test. When guidance goes up, split it. How much came from the sales line, and how much from the margin line? Sales-driven raises survive the lap. Margin-driven raises in a refund quarter often do not.
- Who says “no further refunds.” Dillard's said it. Companies that leave the door open are either genuinely expecting more or preferring not to draw the line. The difference shows up in the following year's comparison.
- The Federal Circuit appeal. DOJ appealed the refund order on June 2, contesting refunds on liquidated entries past the 80-day window. A reversal strands claims still in the CAPE queue — and any guidance that assumed them.
- Q4 calls. That is when management teams start pre-explaining the 2027 comparison. The language arrives roughly two quarters before the miss it is designed to soften.
- Retailers with no refund at all. Domestic sourcers and those who buy from importers rather than importing directly get nothing, and will screen worse than peers for reasons unrelated to how they run their stores.
The practical version is unchanged from twelve days ago and now applies to guidance as well as results: find the tariff number, convert it to per-share, and subtract it before you decide what the company is worth. With Canadian retaliation dated September 8, the next round of trade-policy distortion is already on the calendar.