HRB Q2 Deep Dive: Higher Income Client Gains and CEO Transition Shape Outlook

Tax preparation company H&R Block (NYSE:HRB) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 4.6% year on year to $1.11 billion. The company’s full-year revenue guidance of $3.89 billion at the midpoint came in 1.5% above analysts’ estimates. Its non-GAAP profit of $2.27 per share was 19.9% below analysts’ consensus estimates.

Is now the time to buy HRB? Find out in our full research report (it’s free).

StockStory’s Take

H&R Block’s second quarter results showed steady revenue growth, with management attributing performance to increased traction among higher-income clients and continued growth in its small business and digital services. CEO Jeffrey Jones highlighted the company’s success in expanding its assisted and DIY tax offerings, noting a third consecutive year of client growth for households earning above $100,000. Despite these operational gains, non-GAAP profit fell below Wall Street expectations, a result CFO Tiffany Mason linked to higher operating expenses, including increased wages, elevated healthcare costs, and legal settlements.

Looking ahead, H&R Block’s guidance is shaped by expectations of stable industry growth, further small business expansion, and continued emphasis on capturing higher-value clients. Management emphasized a balanced approach to volume, price, and mix as a key priority, with Mason stating, “Our outlook for next year assumes industry growth in line with historical trends, and a focus on converting more clients who start with us but don’t finish will be critical.” The company also plans to leverage AI-driven improvements across its platforms while CEO transition planning remains a notable focus for upcoming quarters.

Key Insights from Management’s Remarks

H&R Block’s management attributed the quarter’s growth to stronger performance among higher-income segments and small business clients, while also addressing operating expense headwinds and leadership changes.

• Growth in higher-income segments: The company saw its fastest client growth among households earning over $100,000, driven by improved service offerings and targeted marketing efforts, supporting management’s focus on higher-value customers to enhance long-term profitability.
• Retail office conversion improvements: Operational changes in client intake and matching to tax professionals led to a second consecutive year of improved client conversion rates, addressing a longstanding challenge in retaining clients who begin but do not complete their filings.
• AI and digital enhancements: H&R Block expanded the capabilities of its AI Tax Assist tool, resulting in a notable increase in conversion rates for new digital DIY clients. The company also cited progress with its MyBlock mobile app and expert review services as key differentiators in serving both virtual and in-person customers.
• Small business momentum: The small business segment, including both Block Advisors and the Wave platform, delivered double-digit revenue growth. Management attributed this to successful cross-selling of tax, payroll, and bookkeeping services, as well as new paid product launches within Wave.
• Leadership succession announced: CEO Jeffrey Jones announced his planned retirement at year-end, with Curtis, President of Global Consumer Tax and Chief Product Officer, named as his successor. Management stressed continuity in strategy, as Curtis has played a central role in shaping recent initiatives.

Drivers of Future Performance

Management’s outlook centers on stable industry growth, increased small business contributions, and ongoing efforts to improve client conversion and segment mix.

• Strategic balance of volume, price, and mix: Management aims to reduce reliance on pricing alone for revenue, instead focusing on attracting more high-complexity clients and expanding premium product adoption, particularly in both assisted and DIY channels.
• Small business and franchise expansion: The company expects small business services to become a more significant revenue driver, supported by continued franchise acquisitions and broader adoption of digital financial tools tailored to entrepreneurs.
• Cost discipline amid headwinds: Elevated healthcare, legal, and severance costs from the prior year have been factored into the outlook, with management planning additional realignment and cost-saving initiatives to support margin stability despite these pressures.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be watching (1) progress on converting more clients who start tax filings but do not complete them, (2) the impact of ongoing AI and digital enhancements on client retention and acquisition, and (3) execution on small business and franchise expansion strategies. The CEO transition and its effect on strategic continuity will also be an important marker for future performance.

H&R Block currently trades at $51.30, in line with $51.44 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free).

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