Shoppers enter and exit Dior’s luxury boutique in Venice, Italy, on November 16, 2025.
Michael Nguyen/NurPhoto via Getty Images
The retail industry emerged from a turbulent first quarter relatively unscathed, with larger-than-usual tax refunds and increased buy-now-pay-later usage likely contributing to the boost in spending.
Wall Street is looking ahead to the second quarter, which could provide a clearer picture of the health of consumers and how high gas prices and persistent inflation are disrupting the economy and straining already strained household budgets.
“Once we get through April and May, we don’t really see the impact of tax refunds anymore. That month was a little choppy, so there are a lot of variables that could have probably kept consumers moving longer than expected,” said Janine Stichter, retail analyst and managing director at BTIG.
“As you peel back these tax refunds, you may start to see some fundamental weaknesses…The consumer hasn’t completely collapsed yet, so I think people are really looking at the second quarter and saying, ‘What’s really going on with consumer health?'”
The period from February to May, which included first-quarter results for many retailers, triggered a new wave of concerns about household spending. President Donald Trump has launched a new conflict in the Middle East that has led to soaring gas prices, plummeting consumer confidence and renewed concerns about the health of the U.S. economy.
But as retailers reported their first-quarter results over the past few weeks, there were few cracks, as many of America’s largest companies posted higher sales, higher profits and consistent outlooks.
“It was a surprisingly strong quarter,” said Neil Saunders, retail analyst and managing director at GlobalData. “Despite the rising gas prices, despite the volatility in consumer sentiment, despite all the other uncertainties going on in the economy and in the world, I think consumers still showed up, opened their wallets and spent money.”
But around the same time that the Middle East conflict began, tax refunds started trickling in. The number of people who received refunds and the amount they received were higher than last year, giving cash-strapped consumers extra money to go shopping.
“That was a very useful offset in terms of spending. I think we would still have had growth without them, but they really put the icing on the cake,” Sanders said.
take targetAccording to the company, same-store sales increased 5.6% in the first quarter, with strong performance in all six core product categories, marking the first time in five quarters that same-store sales were positive. But the strong performance wasn’t solely due to Target’s turnaround efforts, as finance chief James Lee credited increased tax refunds for spurring spending.
“The benefits will wane over the rest of the year,” Lee said last week. “Consumers have proven resilient so far, but sentiment has declined recently and we are closely monitoring consumer spending behavior.”
Similar trends were observed in the following locations: best buy, Burlington stores, loss and wayfair. At Best Buy, comparable sales rose 2%, and executives acknowledged that some of that growth was due to increased tax refunds. Considering the overall electronics market grew about 3.6% in the first quarter, Best Buy still underperformed and lost market share despite additional stimulus in the economy, Sanders said in an emailed note last week.
The impact was particularly severe in the off-price sector. Burlington estimated that the higher tax refund amount represented 1.5 to 2 percentage points of sales growth (6%) in the quarter. Competitor Ross reported an impressive 17% increase in comparable sales, beating expectations of 9%, and attributed some of the strong growth to additional stimulus.
Kate Gulliver, Wayfair’s head of finance, said on a call with analysts in mid-May that the tax refund helped “soften” the impact of rising gas prices.
“Consumers were able to tolerate the stimulus a little bit more,” she said.
Meanwhile, use of buy now, pay later also increased during the quarter, which may also have contributed to the boost in spending, Stichter said. Stichter said in a May research note, citing transaction data from Consumer Edge, that “buy now, pay later” adoption hit a new high across income brackets in the first quarter, with an estimated 15% to 17% of people making up to $150,000 using the service. Among shoppers spending $150,000 or more, the adoption rate rose to just under 13%.
“There’s probably some level of real stress and some kind of emotional setback across all income groups, it’s just not really showing up in the financial results yet,” she said. “Maybe they’re stepping back in other areas or finding other ways to pay their bills.”
That situation could start to change this quarter, as various retailers issued conservative guidance suggesting consumers may not be able to weather higher gas prices as well as they did earlier this year.
“Ross had a tremendously good quarter. I mean, it was almost unprecedented in terms of the level of growth,” Sanders said. “They think that even though they have bank balances in the first quarter, things will normalize for the second quarter and the rest of the year, although they are still good.”
walmart is another example. The retail giant saw sales rise 7% in its fiscal first quarter, but only reaffirmed its full-year outlook and issued a weaker outlook for the second quarter than Wall Street expected.
John David Rainey, Walmart’s chief financial officer, told CNBC that while the company’s outlook is strong given everything going on in the economy, consumers may feel more nervous as tax refunds wear off in the second quarter.
“I think the increased tax bill has relieved some of the pressure associated with higher fuel prices,” Rainey said. “Currently at a time when tax refunds are scarce, I think consumers will feel even more pressure from rising fuel prices.”
TJX companies had a strong quarter, with same-store sales up 6%, beating Wall Street expectations by almost 2 percentage points, and posting its biggest earnings per share since August 2021. Still, the company’s outlook for second-quarter earnings per share and same-store sales fell short of expectations.
meanwhile, elf beauty Although sales and bottom line improved significantly, the outlook was still weaker than expected. “Consumers are suffering,” CEO Taran Amin told CNBC, adding that the company plans to reverse some of the price hikes caused by the tariffs.
Sanders said that while retailers may “provide more cautious guidance than reality suggests,” management and analysts generally agree that consumers are likely to be more nervous this quarter and the rest of the year.
“(This) suggests that retailers are seeing some indication that some of the trough in growth won’t last through the rest of the year,” Sanders said. “It’s not going to be terrible, but we’re going to see some heat from some of that momentum. I think that’s related to the fading impact of tax (refunds) and the inflation situation that will probably rise throughout the rest of the year.”
