RH has applied for a $69 million refund of tariffs it paid under IEEPA, the emergency-powers statute the courts struck down. The home furnishings retailer will spend $50 million of that money on higher supply chain costs caused by the run-up in oil prices. RH recognized $55.1 million of the refund in its second quarter and expects the remaining $13.9 million over the second half. The last $19 million goes to earnings.
Any importer with a refund claim at CBP is making the call RH just made. The money can go into one quarter’s earnings, or it can cover an operating cost that will still be there next year.
The refund lifted second quarter gross margin to 48.2% from 45.5% a year earlier. It was worth 600 basis points of that margin, so the underlying margin fell to about 42%. RH also recognized $14 million as a reduction of costs carried in merchandise inventories, which reaches gross margin as that inventory sells in the third and fourth quarters. Net revenues rose 2.6% to $922.2 million.
Oil “was 63 at the beginning of the war” in the Middle East and is now at $109, CFO Jack Preston said on the call.
Three other importers spent their refunds the same way this summer. Two did not.
Home Depot collected $730 million in IEEPA refunds and said the money would fully offset unplanned cost pressure on fuel, energy and product inputs for the rest of the year, according to Supply Chain Dive.
Lowe’s put its $80 million against fuel and transportation costs.
McCormick spent a $28 million refund on ocean freight and ingredient costs after the Strait of Hormuz closed.
Walmart routed $2.9 billion into price instead.
Target booked its $994 million as a reduction in cost of sales.
Chairman and CEO Gary Friedman said the costs outlast the conflict. “We are going to be in a higher cost world for probably at least the next six to 12 months,” he said. “Even if tomorrow they end the war, there is too much inflation in the pipeline.”
