Imagine ordering two sizes of a jacket, intending to keep one. That is a hypothetical shopping decision, but it poses a real accounting question: how much of the checkout total should the retailer expect to keep? A payment, a recognised sale and a profitable sale are three different milestones.
For a consumer business, returns belong inside the growth story. The useful question is whether the goods stay sold, what comes back onto the shelves and how much it costs to complete that round trip. Published accounts help with parts of that calculation. They rarely supply a complete profit figure for every returned basket.
Fact: expected returns already reduce sales
Target Corporation (NYSE: TGT) says it recognises sales after allowing for expected returns, using historical patterns and expectations about future returns. Its fiscal 2025 accounts report a liability for estimated returns of $155 million at 31 January 2026, against $172 million at 1 February 2025. Those are two balance-sheet snapshots, rather than the value of every item returned during either year. See Target’s annual financial statements, Note 2.
Target · balance-sheet snapshots
Estimated returns still outstanding
1 February 2025
Estimated returns liability
31 January 2026
Estimated returns liability
Ulta Beauty, Inc. (NASDAQ: ULTA) also records store and online merchandise sales after estimated returns. Its quarterly filing for the period ended 1 August 2026 says merchandise refunds are provided within 30 days of the original purchase. It recognises store merchandise revenue at the point of sale and e-commerce revenue on shipment or customer pickup when control transfers. These policies are set out in Ulta’s quarterly report, revenue-recognition note.
The interpretation is straightforward: an analyst starting from these reported sales should not automatically deduct an imagined returns percentage again. That would risk counting the same allowance twice. A separate concern is whether the estimate proves sufficient as actual customer behaviour becomes clearer.
A reserve and a return rate answer different questions
A year-end liability is an amount outstanding at a particular date. A return rate would describe returned purchases relative to a defined pool of transactions over a period. Dividing one company’s closing reserve by its full-year sales does not turn that reserve into a measured customer return rate.
That distinction matters when the balance falls. A smaller liability could reflect less exposure at the reporting date, different sales timing or a changed estimate. Without the supporting detail, it cannot establish that shoppers are more satisfied, that fraud has fallen or that handling has become cheaper. None of those conclusions follows from Target’s two figures alone.
Comparisons also need the same customer boundary. A wholesaler’s contractual relationship with a retail partner differs from a shopper taking an unwanted purchase back to a till. Both can generate a returns provision; the commercial reasons and settlement arrangements can differ.
Fact: the goods coming back have a separate value
NIKE, Inc. (NYSE: NKE) makes that boundary visible. Its fiscal 2026 filing includes contractual and discretionary authorised returns in its provisions. At 31 May 2026, its $1.589 billion sales-related reserve included a $1.099 billion sales returns reserve; the broader total also covered post-invoice discounts and claims. The estimated cost of inventory expected back was separately recorded at $511 million. See Nike’s annual report, sales-related reserves in Notes 1 and 14.
Nike · 31 May 2026
Three balances, different meanings
Sales-related reserve
Includes discounts and claims
Returns reserve
Part of the broader reserve
Expected inventory back
Estimated cost, separate asset
These balances should neither be added together as a total returns bill nor subtracted to manufacture a disclosed profit loss. One sits inside another, while the inventory amount is a different asset measurement. Nor is the inventory estimate a promise that every returned unit can be resold immediately at its original price.
Who could benefit? Interpretation
Target and Ulta could benefit operationally if they prevent avoidable returns while preserving repeat purchasing. In the hypothetical jacket order, clearer sizing information might help a customer order one suitable item. The potential gain would depend on saved handling and transport costs exceeding the cost of the improvement, without losing worthwhile sales.
Nike has a corresponding opportunity where better product selection or partner planning reduces unwanted goods returning through either channel. The relevant horizon is several selling and settlement cycles. Evidence would include consistently defined return measures, lower processing costs and sustained sales after allowances. The filings cited here do not isolate the earnings benefit of such changes, so assigning a company-specific saving would overstate the evidence.
Who’s at risk? Interpretation
The same three businesses carry the reverse exposure. If more purchases come back than anticipated, sales estimates may need revision, while processing and inventory recovery can create additional costs. Nike explicitly says material differences between actual or expected returns, discounts or claims and its reserves change revenue when identified. Its combined reserve is therefore especially unsuitable as a pure measure of consumer dissatisfaction.
For Target and Ulta, tightening a policy also creates a trade-off. A retailer might save on returns but make a hesitant customer less willing to order again. That is a conditional business mechanism, rather than evidence that either company has chosen the wrong policy. Materiality depends on the affected purchases and the margin retained after all relevant costs.
Speculation: the next basket could change the answer
A retailer could make returns easier and still improve profit if the extra retained business outweighs the extra cost. It could also report healthy order activity while spending more to recover goods that customers do not keep. Neither scenario is a forecast for these companies.
The disclosures have limits: they cover different fiscal dates and businesses, and do not provide a comparable three-company return rate, processing cost per parcel or repeat-customer measure. The annual balances above are explicitly dated historical examples, not estimates of today’s outstanding refunds.
The evidence that would change the assessment is a consistent account of purchases retained, estimates revised, inventory recovered and costs incurred. A busy checkout is a useful starting observation. The margin story becomes clearer after the unwanted purchases have found their way back.
Sources and security identities checked 30 October 2026. This article explains company disclosures and conditional business exposures; it is general information, not an investment recommendation.
Photo by Mavluda Tashbaeva on Pexels. Shopping bags on a shop counter.