Apparel Companies Report Gross Margins Inflated by Tariff Refunds
Summary
GRGD and VNCE reported sharp gross-margin gains, but tariff refunds and easy comparisons drove much of the increase while product and freight costs remained elevated.
On September 10, 2026, Groupe Dynamite (GRGD) and Vince Holding (VNCE) both reported sharp quarterly gross-margin improvement. Each company also said tariff refunds or the comparison against last year's unusually high tariffs accounted for much of the headline gain, while recurring product and freight costs remained elevated.[1][2]
One-Time Tariff Refunds Change the Margin Picture
Importers previously paid IEEPA tariffs when inventory entered the country. After those duties were invalidated, refunds returned to companies as one-time credits. A refund can relate to goods sold this quarter or inventory sold in an earlier period, so current margin can absorb benefits earned across several periods. Replacement tariffs and higher freight costs still flow into new inventory, allowing reported margin and the underlying cost base to move in opposite directions.
Accounting treatment also varies by company. Groupe Dynamite put its C$9.4 million refund on a separate income-statement line and excluded it from adjusted EBITDA. Vince recorded its $10.4 million refund directly in gross profit. Investors therefore cannot assume that an “adjusted” margin is comparable across companies.
Two Disclosures Show the Underlying Cost Direction
Groupe Dynamite's gross margin rose 520 basis points to 68.8%. Management said more than half of the expansion came from lapping last year's tariff impact, while the refund itself remained on a separate line. The company expects another year-over-year gain in the second half, but a much smaller one because the comparison is now cleaner.[1]
Vince's gross margin rose to 60.9% from 50.4%, including a $10.4 million tariff refund. Excluding that benefit, gross margin fell 290 basis points because product and freight costs increased.[2] Vince also expects the remaining $2.6 million benefit held in inventory to flow through in the second half and be offset by incremental freight and product costs.[2]
“Gross profit in the second quarter was 49.8 million or 60.9% of net sales. This compares to 36.9 million or 50.4% of net sales in the second quarter of last year. This includes the benefit of 10.4 million from tariff refunds. Excluding this benefit, gross margin decreased 290 basis points in line with our expectations given the higher input cost experience related to product and freight costs.”
Classification Differences Reach Pricing and the Balance Sheet
Tariff refunds affect more than margin comparisons. Designer Brands (DBI) retained $20.2 million of refund claims inside adjusted gross margin, accounting for 280 basis points of a 430-basis-point increase. A $16.1 million one-time cost tied to refund claims that it sold appeared in interest expense.[3] The same event therefore raised margin while burdening a lower line of the income statement.
Refund cash can also fund price cuts, promotions, or debt repayment. Domestic producers with little tariff exposure may not receive an equivalent cash benefit. The useful follow-up measures are comparable gross margin excluding refunds and easy comparisons, unit freight costs, promotional intensity, and realized pricing after new inventory sells through. The available evidence does not show that every importer will respond in the same way.
Companies Exposed to the Same Shift
- Designer Brands (DBI): Its imported footwear faces the same replacement tariffs, while the refund affects both adjusted gross margin and financing costs.
- Culp (CULP): Its mattress and upholstery fabric operations face similar import costs. About $7 million of refunds created a 12.9-percentage-point gap between reported gross margin and margin excluding the recovery, but future results still depend on whether new costs can be passed through.
- La-Z-Boy (LZB): It produces more than 90% of its upholstery in the United States and received much smaller refunds than import-heavy peers. Competitor promotions funded by refunds could create pricing pressure, but that indirect effect still requires confirmation in sales and margins.
Sources
[1] Drillr · Groupe Dynamite (GRGD) · 2026-09-10 · FY2026 second-quarter earnings call
[2] Drillr · Vince Holding (VNCE) · 2026-09-10 · FY2026 second-quarter earnings call
[3] Drillr · Designer Brands (DBI) · 2026-09-10 · Q2 2026 earnings call
This material identifies potentially overlooked industry changes and companies. It is not a stock recommendation.