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Tax refund delays: Another headache for restaurant sales

Blog: Slower tax refunds this month are slowing sales

This post is part of the On the Margin blog.

Restaurant operators have had a lot to worry about, but now comes this: Slower tax refunds this month are slowing sales.

Several restaurant executives have said during recent earnings calls that sales have slowed in February due partly to slower tax refunds getting into the hands of some customers.

The quarter “is off to a much slower start, as same-store sales have abruptly turned negative, which we believe may be due in part to delayed tax refunds,” Jack in the Box CEO Lenny Comma said during an earnings call. He also cited rain and flooding across California for the West Coast-based chain’s weak sales.

Jack in the Box said same-store sales in the first four weeks of the fiscal second quarter fell about 3 percent. Executives noted that the sales performance was worse in low-income areas, where consumer spending is more readily influenced by one-time infusions of cash like tax refunds.

Guy Constant, CFO at Red Robin Gourmet Burgers Inc., said during an earnings call last week that the lateness of income tax refunds “certainly had a contributing impact” to a “challenging” February for the industry.

Sandra Cochran, CEO of Cracker Barrel Old Country Store Inc., said during an earnings call last week that late tax refunds have contributed to what she calls an “anxious” consumer.

“The consumer is just anxious,” she said. “And the problem is, they all seem to be anxious about different things, whether it is increasing healthcare costs, the potential for healthcare costs, the time of tax refunds, the size of tax refunds. We’re looking at the issue of food at home, food away from home, and the disparity in the pricing of those two. I think when people feel this way, they tend to spend less.”

David Tarantino, analyst with Baird, called the headwind from tax refund delays “sizable” in a note on Monday. The cumulative amount of tax refunds issued to consumers was down as much as $63 billion early last week, he said. That would represent about 15 percent of retail sales for the month, he said.

The good news: That problem is only temporary and should be fixed quickly. The IRS picked up the pace of its refund efforts last week and is now only $18 billion behind last year’s pace, Tarantino said. That suggests last week could have been a good one for the restaurant industry. 

Historically, refunds eventually show up, and lower-income consumers are more likely to take the infusion of cash to restaurants. 

But, as Cochran noted, the delays highlight difficulties for a large segment of the population concerned about their financial wherewithal. That anxiety could be one factor that has pushed down restaurant traffic over the past two years.

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze

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