Retail’s Resilient First Quarter Faces Second-Quarter Stress Test as Tax Refund Tailwind Fades
The retail industry emerged from a choppy first quarter with relatively limited damage, though unusually high tax refunds and a rise in buy now, pay later usage likely helped sustain spending. As Wall Street turns its focus to the second quarter, analysts expect the period to provide a clearer picture of consumer health and reveal how much high gas prices and persistent inflation have disrupted the economy and strained household budgets.
Choppy Start and the Tax Refund Cushion
The period between February and May, which covers many retailers’ fiscal first-quarter results, brought fresh concerns about household spending. President Donald Trump initiated a new conflict in the Middle East, triggering surging gas prices, plummeting consumer confidence, and renewed worries about the U.S. economy’s health. However, when retailers reported first-quarter results over recent weeks, few cracks emerged: sales rose, profits grew, and outlooks remained consistent at many of the largest U.S. companies.
“Once you got through April and May, you're really not seeing the impact of tax refunds anymore, and those months were a little bit choppier, so there's a lot of moving pieces that maybe kept the consumer going for longer than we would have expected,” said Janine Stichter, retail analyst and managing director at BTIG. “As you peel back these tax refunds, you might start to see some of the underlying weakness … the consumer has not yet fully fallen apart and that's why I think people are really looking to Q2 to say, 'All right, well, what does the health of the consumer actually look like?'”
The number of people receiving tax refunds and the amounts they obtained were higher than last year, giving cash-strapped shoppers extra pocket money. “That was a very helpful offset in terms of spending. I think without them there would have still been growth, but they really did provide the icing on the cake,” said Neil Saunders, retail analyst and managing director at GlobalData.
Surprisingly Robust Quarter Despite Headwinds
“It was a surprisingly robust quarter,” Saunders added. “Despite the rising gas prices, I think despite the choppiness in consumer sentiment, I think despite the uncertainty over the economy and everything else that's going on in the world, consumers still showed up and they opened their wallets and they spent.”
Target Corporation reported same-store sales jumped 5.6% during its fiscal first quarter, marking its first positive same-store sales number in five quarters, with strength across all six of its core merchandising categories. Finance chief James Lee acknowledged that higher tax refunds helped fuel spending, though the improvement was not solely due to the company’s turnaround efforts.
Second Quarter as a Clearer Indicator
Analysts now view the second quarter as a critical test period. Without the tailwind from elevated tax refunds, underlying consumer weakness could become more visible. “As you peel back these tax refunds, you might start to see some of the underlying weakness,” Stichter noted.
Market Context
- United States Dollar (USD) to Russian Ruble (RUB): 71.02 (change: -0.35)
- Euro (EUR) to Russian Ruble (RUB): 82.64 (change: -1.05)
- Bitcoin (BTC): $72,791 (24-hour change: -1.3%)
- Crude oil: approximately $72 per barrel (estimated)
- Date: June 01, 2026