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New culprit for softer sales: Late tax refunds

tax money

A delay in mailing federal income tax refunds has put a crimp in consumers’ restaurant spending, adding to a traffic downturn from bad weather in many areas of the country, chain executives told investors last week.

Jack in the Box cited the refund delay as a key reason why same-store sales for the first four week’s of the franchisor’s current 12-week quarter are running 3% below the tally for the year-ago period. The impact is also why comps for Qdoba, a sister brand, will likely be down 1% to 3% for the three-month stretch, Jack in the Box executives said.

Keeping refunds out of taxpayers’ hands to crack down on fraud has lowered restaurants’ sales by more than $3 billion from the year-ago level, CFO Jerry Rebel suggested to financial analysts on Thursday. He based his calculations on Internal Revenue Service acknowledgments that refunds are running about $63 billion behind year-ago reimbursement levels.

Jack in the Box was not alone in citing an impact on sales. On the full-service side, Cracker Barrel and Red Robin similarly attested that they’re feeling the ill effects from refund checks being held longer by the government this year.

Bad weather, particularly in California, has also hurt traffic significantly, executives recounted.

“We've had over 20 days of rain in Southern California this year, compared to only eight days last year,” Greg Trojan, CEO of BJ’s Restaurants, told analysts. Northern California has had more than 30 days of rain, a 50% increase, he added.

“It may be hard to comprehend for those on the East Coast and elsewhere, [but] rain in California frankly is what snow is to the East Coast,” Trojan said. 

Jack in the Box’s Rebel acknowledged that he doesn’t understand it, “being a longtime East Coaster myself,” but “when it rains like it has been here [in California], people literally do not go out of the house.”

But he stressed that tax refunds will eventually reach consumers, who’ll spend about 5% of what they receive on dining out.

“We'll get some benefit back from that, as well as some relief from the rain,” he said.

The IRS delayed refunds to early tax filers until Feb. 15 to crack down on fraudulent claims, particularly ones that take an earned income tax credit, a break extended to low-income people, and tax credits for additional children. Both options are routinely used by tax cheats to boost their refunds.

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