H&R Block profits fall 21 percent from tax season that was unacceptable to CEO
H&R Block, nursing its wounds from the recently completed tax season, vowed Thursday to do better after being beaten in the important digital market by rival Intuit, whose TurboTax promotion drew customers successfully.
The Kansas City-based tax preparation company already had said it filed 4.6 percent fewer returns this year. It updated the damage report Thursday with news that profits for the year fell 21 percent.
“TurboTax’s Absolute Zero (promotion) won the tax season,” H&R Block CEO Bill Cobb told investment analysts during a conference call. “We do not intend to be outplayed again.”
Cobb promised meaningful changes ahead of next tax season.
The company already has cut 250 jobs, and Cobb said it has reduced information technology, infrastructure and support costs as part of a plan to shift resources to attracting new customers.
Its efforts next tax season will include a smaller but smarter marketing budget and a better job of executing the company’s game plan than had happened in the recently completed tax season, Cobb said.
The TurboTax Absolute Zero promotion offered free federal and state filing to many taxpayers who qualified for a 1040EZ or 1040A return. Intuit, which owns TurboTax, reported last month that this was “simply a great tax season for TurboTax.”
TurboTax had run the Absolute Zero promotion a year ago as well, but H&R Block kept up its business and saw revenue increases because of price hikes. When TurboTax repeated Absolute Zero this recent tax season, H&R Block did not respond.
“We chose to stay with the same strategy and it didn’t work. They outplayed us,” Cobb told analysts.
The drop in tax customers at H&R Block limited its profits for the year to $384 million, compared with $487 million a year earlier. Revenues were off 1.3 percent at $3.04 billion.
Cobb called that performance unacceptable and repeatedly told analysts that the company would perform better in the tax season ahead. Chiefly, he said, it will do better attracting new customers, particularly in the early part of the tax filing season, where it has struggled in the last two years.
“I own what happened,” Cobb said, adding that he would not receive a performance bonus this year. “We do not like to lose.”
Cobb said H&R Block would continue to look for possible price increases but told analysts to expect fewer of them and in narrower slices of its business. Price increases in the recent tax season had helped cushion some of the revenue loss.
H&R Block has been actively promoting its ability to help taxpayers with the impact the Affordable Care Act can have on tax returns. Cobb told analysts he was surprised that an increase in the number of Americans receiving health care coverage through the exchanges set up by the act did not translate into more business for H&R Block.
He said he still considers the act as a likely benefit to Block’s business in the long run.
H&R Block wraps up its fiscal year after the U.S. tax season ends in mid-April.
Mark Davis: 816-234-4372, @mdkcstar
Social media shake-up
H&R Block has hired VML, a Kansas City-based marketing agency, to handle its social media, the agency announced Thursday.
Block declined to release the value of the contract, which is for one year. The ad agency will direct the tax preparation firm’s social media strategy and social content creation.
That work had previously been handled by 360i. VML has offices in 28 locations across six continents.
Katherine Knott, kknott@kcstar.com
This story was originally published June 9, 2016 at 3:52 PM with the headline "H&R Block profits fall 21 percent from tax season that was unacceptable to CEO."