By Duvi Honig, Publisher and Editor, JBizNews
Corporate earnings are becoming harder to read.
Billions of dollars in tariff refunds are now flowing back to American companies, creating an unusual situation in which profits can jump even when sales are falling, customer traffic is weak, or the underlying business is barely improving.
For investors, that creates a dangerous temptation: looking at the earnings headline instead of asking where the earnings actually came from.
Consider what we are seeing.
Walmart received roughly $2.9 billion in tariff refunds and is using part of that windfall to help finance price cuts on thousands of products. Yet its U.S. comparable-sales growth slowed to 2.6%, its weakest pace in six years, store-traffic growth slowed, and its next-quarter earnings guidance disappointed Wall Street.
The market noticed. Walmart shares fell more than 9% in one day, wiping out tens of billions of dollars in market value.
That is the market saying: We see the refund, but we also see what is happening underneath it.
Kohl’s provides an even clearer example.
It received approximately $150 million in tariff refunds during the quarter. About $100 million flowed directly through gross margin, helping Kohl’s raise its annual earnings outlook.
But comparable sales declined again, and quarterly revenue remained under pressure.
Kohl’s shares fell.
Again, Wall Street looked past the bigger profit number and focused on the weaker underlying business.
Bath & Body Works received about $80 million in tariff refunds. Reported adjusted earnings were 62 cents a share.
Without the tariff benefit, earnings would have been approximately 31 cents.
Meanwhile, store traffic remained weak, sales declined, and the company forecast another sales decline for the current quarter.
Its shares also fell.
Then there is Kimberly-Clark.
Its profitability benefited from tariff refunds even as sales missed expectations and the company reduced parts of its outlook because of softer demand and other pressures.
Those examples demonstrate the problem.
A higher profit number does not necessarily mean a healthier company.
But this story has another side — and that is just as important.
A Refund Does Not Automatically Mean the Earnings Are Fake
Target received nearly $1 billion in tariff refunds, a tremendous boost.
But Target also produced stronger comparable sales, higher customer traffic, stronger digital sales, and improved its outlook.
Its shares rose.
That is different from Kohl’s.
The refund made Target’s earnings look better, but there was also genuine operating improvement beneath it.
The same distinction applies to Abercrombie & Fitch.
Abercrombie received roughly $100 million in tariff benefits, but it also reported record quarterly sales and continued underlying brand growth.
Investors rewarded the stock.
J.M. Smucker also benefited from tariff refunds, but revenue rose, cash flow improved, and management raised its outlook.
Its shares moved higher.
Home Depot received roughly $730 million in tariff refunds, but sales also grew and the company produced stronger underlying operating results.
Its stock reaction was far more measured.
That tells us something important.
The market is not simply rewarding companies that receive tariff refunds or punishing those that do.
It is beginning to separate real operating performance from temporary financial assistance.
Why the Market Looks Confused
This is why investors are seeing stocks move in opposite directions even when companies announce apparently similar profit increases.
The market is essentially rebuilding the income statement.
Institutional investors are asking:
What would earnings have been without the refund?
Did customers actually buy more?
Did traffic increase?
Did the company gain market share?
Did margins improve because management became more efficient — or because the government returned money?
Is the improvement repeatable next quarter?
That is the correct way to look at these earnings.
But everyday investors can easily be misled by headlines.
“Profit jumps.”
“Company raises guidance.”
“Margins surge.”
“Earnings beat expectations.”
Those statements can all be technically true while still giving investors the wrong impression about the health of the business.
That is where the danger lies.
This Is About More Than One Quarter
The bigger impact may come later.
Wall Street values companies largely on future earnings, not the money they happened to receive yesterday.
Suppose a company normally earns $500 million annually.
It receives a one-time $150 million tariff refund and reports $650 million.
If investors apply a 20-times earnings valuation to the $650 million figure, that implies a business worth $13 billion.
But if sustainable earnings are actually $500 million, the same multiple produces a value of $10 billion.
That is a $3 billion valuation difference created without selling a single additional product.
Multiply that across corporate America and tariff refunds begin affecting far more than quarterly headlines.
They affect earnings-per-share estimates, analyst price targets, valuation multiples, executive compensation, lending decisions, acquisitions, share repurchases, and future investor expectations.
Every spreadsheet eventually has to answer the same question:
Is this recurring income or temporary income?
The 2027 Problem
There is another distortion coming.
Companies receiving large refunds in 2026 will eventually have to compare future earnings against these unusually inflated quarters.
Imagine a retailer earns $2 a share from operations this year plus 75 cents from a tariff refund.
Reported earnings: $2.75.
Next year, the business improves and generates $2.20 from operations.
That is actually 10% real growth.
But without another 75-cent refund, reported earnings fall from $2.75 to $2.20.
The headline could say:
“Earnings Fall 20%.”
The business actually improved.
The comparison simply became distorted.
Today’s tariff refunds can therefore make companies appear artificially strong now — and artificially weak later.
That will complicate earnings comparisons, analyst models, and corporate valuations well into 2027.
What Investors Should Do
My message is not to ignore earnings.
It is to reconstruct them.
When reading a corporate report today, start with four numbers:
Sales. Traffic or volume. Recurring operating margin. Cash flow.
Then look for unusual items such as tariff refunds.
Remove them.
And ask:
What would this company look like if that money had never arrived?
That is the business you are actually investing in.
Then ask a second question:
What is management doing with the windfall?
A company that uses temporary tariff money to reduce debt, improve technology, cut prices, modernize stores, or invest in productivity can turn temporary cash into permanent value.
A company that uses it mainly to make weak earnings look stronger, repurchase shares, or avoid confronting deteriorating operations may simply be postponing the problem.
Is the Market Being Fooled?
Not completely.
Walmart fell.
Kohl’s fell.
Bath & Body Works fell.
Target rose.
Smucker rose.
Abercrombie rose.
Home Depot barely moved.
That is not a market randomly reacting to headlines.
It is evidence that investors are already trying to distinguish between companies where tariff refunds are covering weakness and companies where the refund is sitting on top of genuine growth.
The bigger risk is to people who stop at the headline.
So when you see a company spreading enormous profit numbers across an earnings release like a peacock opening its feathers, do not stare at the feathers.
Look underneath.
Because the question that will determine corporate valuations over the next year is no longer simply:
How much did the company earn?
It is:
How much of those earnings will still exist when the tariff money is gone?
That is the number investors should be valuing.
Duvi Honig
Publisher and Editor, JBizNews
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