Most people have already gotten their tax refunds. That's bad news for restaurants and retailers.

A dollar-a-gallon increase in gas prices can lead to around six fewer drive-through customers a day, a recent analysis found Shoppers in New York City. As the Iran conflict stretches into a second month, clothing stores and restaurants, particularly of the drive-through variety, are now more likely to feel the pain of rising gas prices as tax refunds appear to have peaked. Heading into this year, some Wall Street analysts expected heftier tax refunds as a result of President Donald Trump's so-called One Big Beautiful Bill Act to free up consumer spending. Now, they say, that extra money will likely get chewed up by higher gas prices. Consumers who choose to spend their refunds usually do so right away, BofA analysts wrote in a note to clients. Because most people have already received their refunds, the analysts believe footwear and apparel retailers will see a spending boost during the first quarter. But don't expect that boost to last. "We expect refunds from here to be used to offset higher gas prices which are starting to be felt by U.S. consumers," BofA analysts said in a research note on Monday. The average individual tax refund was up 11% on a year-over-year basis, to $3,571, they said, citing IRS data for the eight weeks through March 20. Meanwhile, the growth in refunds issued have been slowing in recent weeks, from 23% in the sixth week of tax season to 20% in the eighth, "implying refunds may be peaking," BofA analysts wrote. Meanwhile, the analysts said the U.S. average midgrade gasoline price was up 24% from a year ago - about 87 cents - to $4.50 a gallon. Diesel prices were up 51% to $5.38 a gallon. Some retail executives on recent earnings calls have downplayed the potential impact of higher gas prices on consumer spending. And other analysts have said there wasn't a strong connection between higher gas prices and restaurant spending. In the days after the war started, discount retailers like Ross Stores (ROST) and Five Below (FIVE) offered upbeat forecasts. But UBS analysts, in a note on Monday, suggested investors in restaurant chains might have reasons to be more worried about the war's impact. Data from OpenTable showed that U.S. reservation trends were still positive, but less so last week than in the past, the UBS analysts said. But they observed that consumer sentiment slipped in March, likely due to the war and its impact on energy costs. Citing a recent report from Revenue Management Solutions that examined purchases from 2022 to 2026, they said a $1 increase in gas prices can translate to roughly six fewer drive-through customers a day. Cheaper quick-service chains, and those located in cities, were less vulnerable to rising gas prices than those geared toward drive-through service and customers making longer drives to their locations. Among publicly traded chains with drive-throughs, shares of McDonald's (MCD) have fallen 9.4% in March, Dutch Bros shares (BROS) have shed 10.9% and Wendy's stock (WEN) has slid 10.4%, while the S&P 500 index SPX has given up 7.5%. The UBS analysts, citing research conducted by the National Restaurant Association, reported that 82% of restaurant operators said food costs had risen since last year. Tariffs and higher beef prices were among the main drivers. Many restaurants raised prices or removed menu items in response. "Investor discussions last week highlighted increasing caution from geopolitical risks, including potential impacts on restaurant demand from rising gas prices and overall market volatility," the UBS analysts said. The analysts said discussions with investors suggest sentiment has become more negative given geopolitical pressures and slowing sales trends across parts of the restaurant industry. That souring perspective applied even toward companies whose valuations appear increasingly attractive after recent share-price selloffs and where sales momentum still exists. Restaurants believed to possess that momentum, they said, included fast-casual chain Cava Group (CAVA), which in February gave a strong sales outlook, along with Shake Shack (SHAK), Starbucks (SBUX) and coffee-chain rival Dutch Bros. However, doubts remain over the Starbucks turnaround effort. -Bill Peters This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

Most people have already gotten their tax refunds. That's bad news for restaurants and retailers.

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