Q1 2026 retail earnings fueled by tax refunds and BNPL

The retail industry emerged from a choppy first quarter relatively unscathed, but higher than usual tax refunds and an uptick in buy now, pay later use likely helped to buoy spending.

As Wall Street looks ahead to the second quarter, the period could offer a clearer view on consumer health and just how much high gas prices and persistent inflation have disrupted the economy and pressured already-strained household budgets. 

“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, a 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 period between February and May — which encompasses many retailers’ fiscal first-quarter results — brought a fresh wave of concerns about household spending. President Donald Trump started a new conflict in the Middle East, which led to surging gas prices, plummeting consumer confidence and renewed concerns about the health of the U.S. economy. 

But when retailers reported their first-quarter results over the last few weeks, there were few cracks to be found as sales rose, profits grew and outlooks stayed consistent at many of the largest U.S. companies.

“It was a surprisingly robust quarter,” said Neil Saunders, retail analyst and managing director at GlobalData. “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.” 

However, right around the same time the conflict in the Middle East began, tax refunds started trickling in. The number of people who received them, and the amounts they got, were higher than last year, which gave cash-strapped consumers some extra pocket money to go shopping. 

“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 Saunders.

Take Target, which said same-store sales jumped 5.6% during its fiscal first quarter, its first positive same-store sales number in five quarters with strength across all six of its core merchandising categories. But the strength wasn’t just because of Target’s turnaround efforts, as finance chief James Lee acknowledged higher tax refunds helped to fuel spending.

“That benefit will be fading over the rest of the year,” Lee said last week. “While…