The 'choose your own adventure' earnings: Why retailers are handling tariff refunds so differently

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.