Target Announces New (but Not Really) Buy Back Plan

targetThis Wednesday, the popular retail chain Target Corp announced a new $5 billion share buyback program, a move that immediately boosted its stock by a little more than 1%. The Minneapolis-based retailer plans to launch this program after its current $10 billion program wraps at the end of the current fiscal year.

According to Edward Jones analyst Brian Yarbrough, Target is among several mature retailers—which includes the likes of Kohl’s, Macy’s, and Wal-Mart—that have taken to using buyback strategies as a means to drive earnings per share since it is no longer feasible to continue opening new stores.
He explains, quite simply, “There’s nowhere else to put the cash.”

Now, the company is still in the process of opening new stores and has plans to complete roughly 19 more new openings next year. However, these are smaller stores than in the past, stores which do not require as much capital as the massive big-box stores of the past. In addition, the retailer has plans to invest between $2 and $2.5 billion on capital expenditures through next year, with a major focus on improving its supply chain and technology.

Target is still opening some stores and has plans to open at least 19 new stores next year, but they are mostly smaller outlets that don’t require the same amount of capital as its huge big-box stores. It is also planning to invest $2 billion to $2.5 billion on capital expenditures next year, primarily focused on improving its supply chain and technology.
According to Target chief financial officer Cathy Smith, the company’s capital deployment priorities have not changed. She says they will continue to invest first in its primary business and then support the dividend, after the share repurchase efforts.
Smith said, “Today’s announcements reinforce Target’s long-standing commitment to thoughtfully returning cash to shareholders while continuing to prioritize investing in our business.”

As such, the announcement included a quarterly dividend of 60 cents per common share, which is the same as the last payout and will be payable on Dec. 10. And now, the retailer has set a goal to increase the dividend between 5 and 10 percent a year.
In addition, Target has set a goal of buying back of roughly $3 billion worth of shares every year from here on out. A Target spokeswoman confirmed that the new repurchase program does not represent a change to that plan.

“Given our current pace of share repurchase, this new authorization will allow for seamless execution in 2017,” Smith explains.

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