Costco’s Refund Pledge Is the Easy Part

On Costco’s fiscal second-quarter earnings call Thursday, CEO Ron Vachris opened with tariffs. What followed was a commitment retailers and CPG brands selling through or alongside Costco should take careful note of. Vachris said the company would return any IEEPA tariff refunds it receives to its members through “lower prices and better values,” adding that it would “be transparent in how we plan to do this, if and when we receive any refunds.” The administrative machinery for processing those refunds does not yet exist, and as of Thursday, the government agency responsible for issuing them had just told a federal judge it would need up to 45 days to build the technology required to begin.

The legal backdrop is moving fast. On February 20, the U.S. Supreme Court ruled 6-3 in Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act does not authorize the president to impose tariffs, affirming lower court decisions that had characterized the levies as “unbounded in scope, amount, and duration,” according to the Federal Circuit’s August 2025 ruling. Within hours, President Trump issued an executive order terminating the IEEPA duties and a proclamation imposing a 10% global surcharge under Section 122 of the Trade Act of 1974, which PwC’s trade practice described as maintaining effective continuity of trade architecture under a different legal authority. Section 122 expires July 24, 2026, unless Congress acts to extend it. Vachris described the replacement tariffs on Thursday’s call as being in place for “at least the next 150 days.” On March 5, a coalition of 24 states filed suit in the Court of International Trade arguing that Section 122 tariffs are also illegal, contending that trade deficits do not meet the statute’s balance-of-payments threshold, a challenge Bradley’s legal analysis notes may follow the same procedural path as the IEEPA litigation.

In a court filing on Friday, CBP disclosed it had collected approximately $166 billion in IEEPA duties from more than 330,000 importers making more than 53 million entries. The Penn Wharton Budget Model had estimated total refund exposure at up to $175 billion.

The Administrative Gap

Costco sued the Trump administration in late November 2025, seeking a declaration that the IEEPA levies were unlawful and a full refund. It joined a group of companies pursuing similar claims, including Revlon Consumer Products, Bumble Bee Foods, Bausch & Lomb, Dyson, and L’Oreal, with FedEx filing suit after the Supreme Court ruled. But as Vachris acknowledged Thursday, it is “not yet clear what the process will be, what refunds, if any will be received and when this will happen.”

On March 4, CIT Senior Judge Richard Eaton ordered CBP to halt liquidation of IEEPA duties and begin unwinding assessed duties, stating from the bench that “there are no merits” to the government’s procedural objections and that “the duties were unlawful from the first moment they were imposed,” according to Foley & Lardner’s account of the hearing. Eaton indicated that relief would extend to all importers of record, not only those that filed their own refund actions, and the Chief Judge of the CIT assigned all 2,000-plus IEEPA tariff cases to him. Friday, CBP’s executive director of trade programs filed a declaration stating the agency’s existing systems were “not well suited to a task of this scale,” proposing a new automated process it estimated could be ready in 45 days. Following a closed conference that afternoon, Eaton paused his immediate refund order to allow that process to develop, according to Thompson Hine’s SmarTrade reporting. TD Securities had estimated, before CBP’s filing, that the full refund cycle would take 12 to 18 months.

PwC’s trade practice noted in a February analysis that the Supreme Court ruling “does not create an automatic refund mechanism” and that outcomes would depend on administrative execution, documentation quality, and claim support. Even after Friday’s partial resolution, CBP’s proposed 45-day build addresses only the mechanics of liquidation and reliquidation; how refunds flow through to parties beyond the importer of record remains an open question.

How Costco Got to This Position

The commitment Vachris made Thursday carries practical weight in part because of how actively Costco has managed its tariff exposure. In its Q4 fiscal 2025 earnings call on September 25, CFO Gary Millerchip told analysts that the company’s buying expertise and limited SKU model give it “greater agility” to navigate tariff pressure and minimize its impact. Costco operates approximately 4,000 SKUs per warehouse location, a fraction of the 140,000-plus carried by a typical Walmart supercenter. On the Q3 fiscal 2025 call in May, Millerchip told analysts that about a third of Costco’s U.S. sales come from imported goods, with items from China representing approximately 8% of total U.S. sales.

On the Q4 FY2025 call, Vachris said Kirkland Signature “brings high-quality value to our members while offsetting potentially inflationary impacts from tariffs,” and noted that the company is moving more Kirkland production into the countries and regions where the items are sold. Kirkland penetration continued to increase through the quarter, and the company launched more than 30 new Kirkland items in Q4 FY2025, according to Grocery Dive’s reporting on the earnings call. During the Q3 FY2025 call, Vachris also described rerouting goods sourced from high-tariff countries to non-U.S. markets and sourcing additional locally produced items to remain in stock domestically. Supply Chain Dive’s October 2025 reporting on the Q4 call confirmed the company extended that approach into categories including mattresses and health and beauty.

The Planning Problem That Persists

The tariff picture has not resolved, even with IEEPA off the table. Vachris said Thursday the current environment remains “extremely fluid,” and noted that Costco has been lowering prices on textile, bedding, and cookware SKUs where tariff reductions make that possible. The company posted second-quarter net sales of $68.24 billion, up 9.1% year over year, and net income of $2.04 billion, compared with $1.8 billion in the year-earlier period, according to Costco’s investor relations release.

Inflation in the quarter was more nuanced than those headline numbers suggest. Millerchip said food and sundries saw slight deflation, led by produce, eggs, and dairy, while non-food categories faced “slightly higher inflation” in areas where tariffs had an effect. He also raised the conflict with Iran as a variable most retail planning teams are not yet modeling, saying on the call that inflation had been trending toward low single digits in Q2 but that the situation in the Middle East had introduced new uncertainty since that assessment was made.

At Carter’s Q4 2025 earnings call on February 27, CEO Doug Palladini told analysts the company was setting aside any potential benefit from the Supreme Court’s IEEPA ruling in its fiscal 2026 guidance, saying details had not yet fully emerged and that benefits would take time to flow through the P&L due to inventory accounting. CFO Richard Westenberger told analysts Carter’s absorbed roughly $60 million in incremental tariff costs in 2025, with year-end inventory values inflated by $50 million in duties already baked into the balance sheet, and projected the gross tariff impact would grow to over $200 million in 2026. Rocky Brands told analysts on its Q4 2025 earnings call that it expects roughly $10 million in additional IEEPA-related tariff costs to hit its P&L in the first half of 2026, with 80% concentrated in Q1, because duties embedded in inventory received before the Supreme Court’s decision continue flowing through regardless of subsequent legal developments.

The importer-of-record question Eaton left open at the March 4 hearing also has direct implications for suppliers selling into Costco and other major retailers. As a general matter, CBP refunds flow to the importer of record. How those refunds move downstream to buyers, and under what contractual terms, is not yet defined. Costco has committed to passing on whatever it receives. What that looks like at the SKU level, and when, depends on a refund process that as of today has no confirmed timeline and no finalized mechanics.

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