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Some retailers are starting to feel the pinch from delayed tax refunds

Krystal Hu

As this tax-filing season has seen a slow start, businesses from big box retailers to restaurant chains, are starting to face some initial pressure on sales.

At the end of the first three weeks in the tax season, total tax refunds returns were down by 38.8% compared to last year. This has impacted some businesses that usually expect a lift in sales from customers who spend their tax refund money. Analysts at UBS say retailers levered to lower income demographics or specializing in home improvement will be impacted the most by lower or delayed tax refunds.

“We're feeling a little bit of softness right now due to what has very clearly publicly been both a quantity of tax returns being down, but also the amount per return right now is down,” Best Buy (BBY) CFO Corie Barry said during an earning call on Wednesday. Internal Revenue Service data by mid-February shows an average refund dropped to $2,640 from $3,169 last year. The retailer said it has incorporated that into its guidance for the first quarter of 2019.

L Brands (LB), the Ohio-based fashion retailer that runs Victoria's Secret and Bath & Body Works, is seeing some negative impact as well. “February has been a little choppy because of the timing of tax refunds,” CFO Stuart Burgdoerfer said on Thursday.

People who have received smaller-than-expected refunds shared their frustration on social media. On Twitter, “smaller refund” was mentioned more than 270,000 times on February 22, according to research platform Sentieo.

AutoZone (AZO), the country’s largest automotive parts and accessories retailer, said it’s “anxiously awaiting” for tax refunds, particularly delayed child tax credit and earned income tax credit to flow this week. “Clearly, that is impactful to our business. We've talked every single year over the last decade about the importance of tax refund season,” said AutoZone CEO William Rhodes on Tuesday. “We're ready for them and look forward to seeing those dollars, but nothing else we can do beyond that.”

Refunds starting to catch up

Retailers are hoping consumers spend tax refunds on shopping. (REUTERS/Jonathan Ernst)

The latest report from the IRS could bring some relief to retailers. According to the data released on Thursday, the total amount of refunds is only 3.6% lower from last year and average refund size has grown to the same level. The U.S. Department of the Treasury said the rise is due to the remainder of the Earned Income Tax Credits and Child Tax Credits being paid out this week.

One month into the tax season, it’s still too early to determine the total amount of final tax refunds. Businesses have various estimates on how tax reform will impact people’s take-home pay and the size of tax returns. Home Depot (HD) CFO Carol Tome predicted back in November many of its consumers will “have a nice tax surprise next year”.

“The good news is at the end of the day, people will see reductions in their tax rate, meaning their take-home pay throughout the year, no matter what the amount of the return is in and of itself,” said Barry of Best Buy. The consumer electronics giant reported strong sales growth on Wednesday, pushing its shares up by nearly 16%.

Sandra Cochran, CEO of the national restaurant chain Cracker Barrel (CBRL), is less optimistic. “Just generally, I think we are not looking for the tax refunds to be a big positive to our business at this point.”

Many businesses were expecting a windfall from the Tax Cuts and Jobs Act passed in 2017, which reduced the top tax rate to 37% from 39.6%. But many factors have made the size of tax returns unpredictable. There are fewer households who qualify for the Alternative Minimum Tax, but child tax credits could boost refunds. Analysts also warn withholding tables for 2018 were likely not adjusted correctly.

“I think there's more uncertainty than there usually is in tax refund season this year,” said Ernest Garcia, CEO of used car dealer Carvana (CVNA).

How is your tax refund this year? Do you plan to spend it on big-ticket items? Share your thoughts with Krystal Hu via

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