Between the Ruling and the Refund: Retail’s Tariff Whiplash Enters a New Phase

When Carter’s Inc. reported fourth-quarter earnings on February 27, CFO Richard Westenberger spent considerable time on a subject that had nothing to do with babywear demand or fleet optimization. His company had absorbed roughly $60 million in incremental tariff costs during 2025, with year-end inventory values inflated by $50 million in duties already baked into the balance sheet. And yet, in laying out fiscal 2026 guidance, Westenberger told analysts the company was excluding any potential benefit from the Supreme Court’s IEEPA decision. He cited uncertainty around refunds so deep, and a recovery timeline so protracted through inventory accounting, that booking any benefit now would be premature.

That gap between legal victory and financial relief is the story most coverage of the IEEPA decision has missed. On February 20, the Supreme Court held 6-3 in Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act does not authorize the president to impose tariffs. The ruling invalidated the broadest components of the trade regime erected over the past year, from the “fentanyl tariffs” on China, Canada, and Mexico to the “reciprocal tariffs” applied to virtually every U.S. trading partner. Penn Wharton Budget Model economists estimate IEEPA-based collections totaled between $175 billion and $179 billion. More than 2,000 lawsuits seeking refunds had been filed in the U.S. Court of International Trade by the end of February, according to Bloomberg News.

Retail Dive’s review of court filings reads like a roll call of the consumer economy: Kohl’s, PacSun, J. Crew, Abercrombie & Fitch, Lululemon, Reebok, Tarte, E.l.f. Cosmetics, Dollar General, Family Dollar, Ollie’s Bargain Outlet, Allbirds, Skechers, L’Oreal. Apparel, footwear, beauty, and value retail are all represented, signaling that virtually every category with meaningful import exposure has skin in this fight.

Yet the lawsuits are the simple part. Inside corporate finance teams, the harder work is reconciling import records against a refund process that does not yet exist. Inside planning organizations, it is modeling margin trajectories under a replacement tariff regime that shifted twice in 48 hours. And inside boardrooms, it is deciding whether to build the compliance infrastructure this moment demands or to keep treating trade policy as an intermittent disruption to be absorbed.

The Inventory Accounting Lag

Timing is the most underappreciated dimension of this story. Tariffs paid on imported goods do not hit the income statement when the duty is assessed at the port. They hit when the goods sell. Carter’s reported year-end inventories of $545 million, up 8% in dollars but down 4% in units, with the gap attributable to tariff-inflated costs. IEEPA duties paid months ago are still sitting on its balance sheet as capitalized inventory costs. Even if a refund arrives in 2026, the accounting treatment is not a simple reversal.

Anyone managing brand P&Ls across retailers or running commercial planning for a CPG portfolio should take note. Tariff costs embedded in current inventory will continue depressing gross margins through the first and second quarters of 2026 regardless of what courts decide about refunds. Rocky Brands, which absorbed about $10.9 million in IEEPA tariffs during 2025, told analysts it expects roughly $10 million in additional IEEPA-related tariff costs to hit its P&L in the first half of 2026, with 80% of that concentrated in Q1. Those costs are locked in because the inventory carrying those duties was imported and received before the Court’s decision.

Forward-looking margin guidance and trade investment plans cannot assume refund benefits in the near term. Several companies reporting earnings in late February made this explicit. Warby Parker’s VP of Finance Planning and Analysis Josh Truppo told analysts the company had not incorporated any benefit from the Court’s opinion into 2026 guidance. Carter’s took the same posture. By most legal and trade compliance estimates, the refund timeline stretches 12 to 18 months at minimum; TD Securities has offered that range publicly. A case management process has to be established at the Court of International Trade. And the administration has signaled it intends to fight. Treasury Secretary Scott Bessent called refunding importers “the ultimate corporate welfare” on Fox News the day of the decision, then told the Economic Club of Dallas the process could drag on for weeks, months, or years.

Companies that priced refund benefits into near-term plans will find themselves explaining the miss when those benefits fail to materialize on schedule.

The Replacement Problem

Hours after the Supreme Court decision, President Trump signed a proclamation under Section 122 of the Trade Act of 1974 imposing a 10% global import surcharge effective February 24. By February 21, via a Truth Social post, the administration raised that rate to 15%, the statutory maximum under Section 122. No prior president had ever invoked Section 122, but the administration clearly had the replacement authority queued and ready.

Yale Budget Lab calculated that the effective U.S. tariff rate dropped from roughly 16% under the full IEEPA regime to 13.7% with Section 122 in place. Global Trade Alert put the trade-weighted average at 13.2%. Real but modest. And the top-line numbers mask significant category-level variation. Under IEEPA, Chinese imports faced rates as high as 145%. A flat 15% surcharge compresses that country-specific variation considerably, meaning some supply chains face meaningfully lower duties while others see little change.

Brands and retailers managing multi-country sourcing strategies will find the math on where to source has shifted, but the cost has not disappeared. Goods subject to Section 232 tariffs (steel, aluminum, copper, automobiles) are excluded from the Section 122 surcharge, while USMCA-qualifying goods from Canada and Mexico remain exempt. The exemption structure largely mirrors the IEEPA framework, suggesting the administration’s objective is continuity of trade architecture under a different legal authority.

Section 122 expires on July 24, 2026, unless Congress votes to extend it. Investigations under Section 232 and Section 301 are already underway that could produce longer-term tariffs, but those authorities require formal investigative processes, public comment periods, and evidentiary records. They cannot be deployed overnight. A brief window of lower tariffs could open between the Section 122 expiration and whatever new actions materialize, or Congress could act to extend. Neither outcome is predictable, which means building a 2026 commercial plan around any single tariff scenario is an exercise in false precision.

Planning teams have no stable baseline. Effective tariff rates could drop by midsummer or hold. New sector-specific tariffs under different authorities could arrive in the second half. Some form of import duty regime will persist, but its shape remains unknowable with any useful specificity.

Refund Readiness as Organizational Capability

When the refund process takes shape, it will test capabilities most retail and CPG organizations do not possess in mature form. As of December 10, 2025, more than 301,000 importers had made more than 34 million entries subject to IEEPA tariffs, according to data cited by the Congressional Research Service. U.S. Customs and Border Protection had collected approximately $129 billion in IEEPA duties and estimated deposits by that date, with a substantial portion of those entries still unliquidated. Whether an entry has been liquidated determines the available path to recovery: entries not yet finalized through CBP’s liquidation process (which typically occurs 314 days after entry) present a clearer route, since importers can file Post Summary Corrections to remove IEEPA duties before the entry is closed. Entries already liquidated require formal protests within 180 days or, failing that, litigation, a process that adds months and legal cost to any recovery effort.

PwC’s guidance to clients after the decision amounted to a compliance infrastructure buildout: inventorying total IEEPA-related duties by liquidation status, mapping Post Summary Correction and protest deadlines, modeling refund timing under multiple scenarios, reviewing contractual tariff pass-through provisions, and reassessing transfer pricing policies that incorporated tariff costs.

That final element deserves particular attention from CPG companies operating through retailer partnerships. Across the industry, tariff costs have been handled through a tangle of mechanisms: supplier price concessions, importer surcharges, list price increases, promotional adjustments, and margin compression absorbed without formal documentation. Who is legally entitled to a refund is not always the same question as who bore the economic cost. Regulations provide that refunds are paid to the importer of record. But as Skadden’s legal analysis noted, companies that receive refunds could face litigation from counterparties and customers seeking a share.

Consider a CPG brand that negotiated pricing with Walmart, Target, Kroger, or Amazon and factored tariff costs into those conversations. If the brand raised wholesale prices to offset duties, and the retailer accepted those increases or passed them to consumers, who has a claim on the refund? These questions will play out differently across every retailer relationship, and the answers depend on contract language that, in many cases, was drafted without this scenario in mind.

The Desensitization Risk

William Blair analyst Dylan Carden told Retail Dive the industry has become “incrementally slightly more desensitized” to trade volatility after living with it for more than a year. As a read on market sentiment, the observation is accurate. As a guide to operational posture, it points in exactly the wrong direction, toward complacency at a moment when the cost structure and compliance demands of trade policy are both intensifying.

Late-February earnings calls revealed a consistent and troubling pattern: tariff costs are accelerating, not stabilizing. Carter’s projected a gross tariff impact of over $200 million in 2026, up from $60 million in 2025. Inter Parfums’ CFO told analysts that tariffs “will continue to represent a significant headwind in 2026.” Rocky Brands expects $10 million in front-loaded tariff pressure. Warby Parker’s gross margin fell 130 basis points in 2025 due partly to tariff costs and shipping, even as revenue grew 13%.

Accepting a permanent increase in the cost of doing business without building the organizational muscle to manage it dynamically is the real risk here. Brands and retailers that treated IEEPA tariffs as a temporary disruption, absorbing costs through margin compression and delayed sourcing adjustments, now face a replacement regime with a different structure but a similar cost profile. And the compliance demands of the refund process are layered on top of, not instead of, the operational demands of new tariffs.

Organizations that invested early in customs data infrastructure, diversified sourcing with verifiable country-of-origin documentation, and built trade compliance teams with genuine expertise are positioned to both recover IEEPA duties efficiently and adapt to whatever follows Section 122. Those that treated tariffs as a line item to be absorbed rather than a capability to be built will find the refund process slow, the new duties disorienting, and the organizational costs of catching up far higher than the cost of having prepared.

What the Ruling Actually Changed

By ruling that IEEPA does not confer tariff authority and invoking the major questions doctrine, the Court closed the fastest and broadest mechanism available to any president for imposing import duties. Future tariff actions under Section 232 and Section 301 require investigative processes, evidentiary records, and public comment periods. These statutory guardrails mean slower implementation, more predictable timelines, and greater opportunity for industry input before duties take effect.

That procedural shift matters more than the rate shift. Overnight tariff announcements affecting all imports from all countries are, for now, a thing of the past. What replaces them may be no less costly, but it will be slower-moving and more targeted by sector and country. Companies managing multi-retailer portfolios, allocating trade dollars across channels, and making sourcing decisions for 2027 and beyond can plan for a tariff environment that is structurally elevated but procedurally more conventional.

Refunds will resolve on their own timeline, shaped by CIT proceedings, administrative decisions, and political dynamics that no corporate planning team can control. Waiting for the check is not a strategy. What matters now is ensuring import records are clean, liquidation timelines are tracked, contract language is reviewed, and the organization can respond within weeks when the process is finally defined. Brands filing lawsuits in the Court of International Trade have taken the most visible step. Building the internal capability to follow through is the harder one, and the one that separates companies positioned for the next disruption from those that will be caught off guard again.

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