Abercrombie & Fitch reported second-quarter earnings per share of $4.17 against a consensus near $1.98. Read the headline and you would conclude the company more than doubled what Wall Street expected. Read the cost of sales line and you find roughly $100 million of refunded tariffs sitting in it, worth about $1.75 a share and nearly 790 basis points of operating margin.
Strip the refund and the quarter is still good — net sales up about 5% to roughly $1.3 billion, a fifteenth consecutive quarter of growth, and management's own claim that the underlying business ran about 200 basis points ahead of plan. But it is a different quarter. It is a solid retailer, not a miracle.
This is now the defining feature of the retail earnings season, and Abercrombie is not the outlier. Dollar General beat by 48 cents this week and 25 of them were the same refund. Apple has received $2.2 billion. Amazon has received $600 million. Customs and Border Protection has accepted roughly $128.68 billion in potential and certified refunds for processing.
Our take: A tariff refund is not revenue, not a cost saving, and not repeatable. It is a court-ordered reversal of money the company already paid, arriving in one lump, in the quarter the paperwork clears. It flatters EPS, operating margin, gross margin and cash flow simultaneously — which is why it is so easy to miss. There is no line item called “refund”; it shows up as cost of sales that is lower than it should be. For the next two quarters, the only honest way to read a retail beat is to find the tariff disclosure first and do the subtraction yourself. Everything above that line is noise.
Where the $128 billion came from
In February the Supreme Court ruled 6–3 that the International Emergency Economic Powers Act does not give a president authority to impose tariffs of indefinite scope. The Court of International Trade then directed CBP to refund what had been collected. The money goes to the importer of record — the entity that physically paid the duty at the border.
That last clause is doing enormous work. A Federal Reserve study found US businesses and consumers absorbed close to 90% of the extra IEEPA costs, and the Tax Foundation estimated the tariffs added roughly $1,000 to the average family's tax bill in 2025. None of those households were the importer of record. The refund flows to the company that wrote the cheque to customs, not to the customer who paid the higher shelf price.
The bill that has not arrived
Which sets up the second-order problem, and it is a real one for anyone holding retail equities. Consumer class-action plaintiffs are already arguing that tariff costs were passed through to shoppers and should therefore be passed back. Law firms have begun advising retail clients on the disclosure and litigation exposure that comes attached to the windfall.
So a refund booked as a one-time gain today may be a contingent liability tomorrow. Companies that raise full-year guidance on the back of it — Abercrombie now guides to $13.10–$13.60 in EPS against a prior $10.20–$11.00, with operating margin lifted to 14.5–15% from 12–12.5% — are effectively spending money they may be asked to explain. Note that Abercrombie's raise is not purely refund-driven; the sales-growth guide went up too, from a 3–5% range to about 5%. That distinction is the whole game.
What to watch
- The subtraction, every time. Find the tariff-refund figure in the release, convert it to per-share, subtract it, and compare that number to consensus. If the beat disappears, the beat was legal, not operational.
- Guidance composition. A raise built on higher sales expectations is durable. A raise built on a refund landing in Q2 is arithmetic that does not repeat in Q4.
- Litigation disclosures. Watch the risk-factor language in the next round of 10‑Qs. That is where pass-through exposure will surface before it reaches a docket.
- The comparison base. Next year's second quarter laps a quarter inflated by a one-off. Companies that do not flag it now will be explaining a “decline” in twelve months' time.
- Who did not get one. Retailers that sourced domestically or bought from importers rather than importing directly get nothing — and will look worse than peers for reasons that have nothing to do with how they run their stores.
The broader point outlasts the refund. Two consecutive quarters of retail results have now been shaped by trade policy rather than trading. With Canadian retaliation dated September 8, the next distortion is already on the calendar.