Nintendo's Sales Fell 9.5% and Profit Rose 150%: Tariff Refunds

When two numbers in a company's quarterly report move in opposite directions, the thing that made the difference is usually not the business.

That was exactly the picture in Tokyo on the evening of August 6, when Nintendo reported. Net sales were down 9.5% from a year earlier. Operating profit was up 150.5%, to ¥142.5 billion. Switch 2 sales came in at 3.82 million units for the quarter, a 34.4% decline year over year.

Fewer consoles, less revenue, two and a half times the profit.

The item that made the difference sat in the footnotes: roughly $300 million in tariff refunds recovered from U.S. Customs. Nintendo booked that money not on a separate "other income" line but as a direct reduction of cost of sales. The stock rose 9.43% the next day.

Nintendo was not alone. In the same stretch, Apple booked $2.19 billion in refunds, Nike $986 million, and Deere $272 million. This is the first quarter in which an entire earnings season has been tinted by the same one-time item.

A February Ruling, an August Earnings Season

The story began on February 20, 2026. The U.S. Supreme Court ruled 6–3 that the International Emergency Economic Powers Act of 1977 — IEEPA — does not grant a president the power to impose tariffs of indefinite scope. The decision removed the legal footing for duties imposed by ten separate executive orders, starting in February 2025, on goods from Canada, Mexico, China, Brazil and India.

The sums collected in the interim were not small. According to the Penn Wharton Budget Model, cumulative IEEPA revenue reached $164.7 billion through January 2026, running at roughly $500 million a day. Those duties amounted to about half of all U.S. customs revenue.

The ruling did not send the money back on its own. What it left behind was a refund process that had to be run across more than 53 million entries and more than 330,000 importers. Customs and Border Protection built a new system for it, called CAPE; the first phase opened on April 20, 2026 and covered roughly 63% of entries on which IEEPA duties had been paid. Refunds are not automatic: the importer has to file the claim, attach entry documentation and complete electronic payment registration. Accepted claims are generally paid within 60 to 90 days.

Nintendo did not wait in that line. On March 6, 2026 it sued the U.S. government in the Court of International Trade, seeking its duties back with interest and asking that its entries be reprocessed.

Where the Money Lands on the Income Statement

The refund is interesting as a legal story. The part that matters to an investor is where the money lands in the profit and loss account.

The last two links in that chain are the critical ones. A company could put this money in either of two places. Booked at the bottom of the income statement, under something like "non-recurring income," everyone can see it is one-time and strip it out of their model. Booked as a reduction of cost of sales, the same money lifts the gross margin — and gross margin is the line investors extend into the future.

Apple said so plainly in its release: gross margin came in at 50.1%, including a favorable impact of roughly 2 percentage points from tariff refunds. Deere's $272 million was buried in the production cost line, lifting equipment operations margins by about 2.5 percentage points.

The Mechanism: Why Profit Doubles While Revenue Falls

Nintendo's "sales down 9.5%, profit up 150.5%" is not magic. It is the arithmetic of operating leverage, and a single worked example shows it.

Nintendo's operating profit a year earlier was roughly two fifths of the ¥142.5 billion just reported; the comparison base was already low. Add a one-time cost recovery to a low-base quarter and a 150% increase falls out of the multiplication of very few numbers.

This is also where the mistake gets made. Take the new 35% gross margin from the example above and apply it to next year's revenue, and you have modeled an extra 5 of profit every quarter. The real operating margin is still 30%. Carried through a ten-year valuation model, that can make a company look half again as profitable as it is. More: What Is Valuation?

The Market Did Not Do the Same Subtraction Everywhere

The interesting part is that the same line item produced three different outcomes at three companies.

Apple's numbers were the cleanest. Reported EPS was $2.02 against a $1.89 consensus. Of that 13-cent beat, 11 cents came from tariff refunds.

So roughly 85% of the beat had nothing to do with the business. The market did the subtraction: Apple fell about 7% the following session, erasing some $350 billion of market value. Guidance of 9–11% revenue growth for the September quarter had come in below the roughly 12% Wall Street expected.

Deere went the same way. EPS of $6.55 beat the $5.70 estimate by 15%, and the stock still fell 5%. Management had flagged that ongoing direct tariff exposure runs to about $1.2 billion for the full year — a permanent drag of roughly 3 points on equipment margins.

Nintendo went the other way, and the stock rose 9.43%.

The chart below is not evidence for any of this; it shows where the largest refund recipient trades today.

Refund sizes vary enormously from company to company, and that spread is a direct map of who imports how much.

The name at the bottom of that list is the most instructive. Warby Parker closed the quarter with net income of $4.6 million; the refund it booked was $11.8 million. Without it, the company would have reported a loss rather than a profit. FedEx, meanwhile, chose not to keep the roughly $800 million it received, returning it to the shippers who had paid the duty in the first place.

What Is Left

Three things.

First, the job is not done. The $71.06 billion paid through June 29 is about 68% of the $104.29 billion authorized. By the Cato Institute's count, approved refunds cover only 30% of all entries — though those entries represent nearly 60% of the dollars owed. The plain reading: large importers got paid first. The government still owes importers more than $100 billion.

Second, the litigation is not closed. The Justice Department appealed on June 3, arguing that the court's nationwide refund order is impermissibly broad and that only importers who filed suit deserve refunds on finally liquidated entries. If that argument prevails, roughly $30 billion is at risk for companies that never sued. Nintendo's decision to file in March looks less like a coincidence in that light.

Third, the tariffs did not go away.

That distinction is why the refund is a timing difference rather than an improvement in profitability. In the same presentation, Nintendo said higher component prices — memory above all — together with continuing tariffs could add roughly ¥100 billion (about $680 million) to cost of sales over the year. Three hundred million dollars came back this quarter; more than twice that is expected to go out next year. The company left its full-year operating profit forecast unchanged at ¥370 billion.

Two Readings

One point deserves emphasis: no institution has published a consolidated figure for how much of the S&P 500's quarterly profit came from tariff refunds. FactSet data shows blended earnings growth of 37.9%, the highest since the third quarter of 2021, with 86% of companies beating estimates against a five-year average of 78%. But the same data set shows how far a single company can bend that picture: strip out Alphabet's $98 billion valuation gain and index earnings growth falls from 37.9% to 25.9%.

In other words, this quarter's headline profits contain more than one non-recurring item, and none of them will repeat next year.

Tariff and refund figures in this piece come from the Penn Wharton Budget Model, the Cato Institute, and legal notes from Skadden and Holland & Knight; company figures come from Nintendo's, Apple's and Deere's own disclosures and from reporting by The Japan Times, Bloomberg and FactSet. Refund amounts on finally liquidated entries may change while the appeal is pending. Aggregate refund estimates circulating on social media were not used, as they carry no verified source.