Target Corporation (TGT) announced today that it was resuming a $10 billion stock buyback program that its board approved in November 2007 and suspended in November 2008. In its announcement, the company attributed the buyback to “much stronger-than-expected cash flow” and said that spending the riches on a buyback allows the company to create value for our shareholders over time.”
They must mean geologic time. Why not give shareholders something a little more immediate, like, say, a special one-time dividend that would be payable very soon.
Buying back stock typically results in a bump to the company’s share price. Fewer shares outstanding means each share is worth a bit more. That’s good for investors.
But it’s very good for company executives, whose compensation plans are often tied to a company’s share price. Special dividends, indeed dividends of any kind, provide little immediate benefit to executives because most of their investment in the company is really only stock options.
Here are a couple of other recent examples of buyback-itis. GameStop Corp. (GME) announced a $300 million share buyback yesterday, and SonoSite (SONO), a maker of portable ultrasound machines, on Monday revealed that it is buying back $100 million of its shares. It’s hard to believe that either of these companies can’t find a better use for their cash.
GameStop same-store sales were lousy during the holiday season, and SonoSite has preliminarily reported that fourth-quarter results fell as a result of fewer orders from military customers. GameStop needs to think about increasing competition from big players like Amazon (AMZN) and Wal-Mart (WMT). SonoSite needs to find new customers. Its revenues fell year-over-year. And these guys are buying back stock?
Target, though much larger than either GameStop or SonoSite, faces equally big challenges. Annual revenues are down nearly 3% from 2008, and the company expects January sales to be flat or just barely better than a year ago.
Couldn’t the company use the $5 billion or so left in its buyback fund for something better? If not, they could at least have given shareholders some cash now.
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