By Matthew Quinn
Target Corp. announced on Thursday that it is resuming its $10 billion share buyback plan after suspending repurchases in November 2008 in order to protect liquidity and its debt ratings.
"Better results in both our retail and credit card segments, together with disciplined management of our capital expenditures and significant reductions in credit card receivables, have contributed to much stronger-than-expected cash flow generation," said Gregg Steinhafel, Target chairman, president and chief executive officer, in a press release.
For the nine months ended Oct. 31, sales at Target were flat and revenue from credit cards fell 4 percent compared to a year earlier. The company reduced its credit card receivables by 12 percent over that same time. Cash flow from operations improved 70 percent to more than $3 billion.
"Target must be thinking that the worst is over," wrote GimmeCredit analyst Carol Levenson in a note to investors following the announcement. "But bear in mind that the primary reason why free cash flow is high at the moment is because capital spending has been cut roughly in half."
As of the end of third quarter 2009, Target has acquired approximately 95.2 million shares of its common stock under the current program at an average price per share of $51.42, for a total of $4.9 billion. It expects the remainder of the program to be completed within two to three years. Target's share price has doubled since hitting a 52-week low of $25.00 in March.
But while Target's outlook has apparently improved, the U.S. retail industry remains a volatile place. Sales at U.S. retailers took an unexpected fall in December following an increase a month earlier, according to data released by the Commerce Department on Thursday. Sales decreased 0.3 percent last month following a 1.8 percent rise in November. Economists forecasted a 0.5 percent increase, according to a survey by Bloomberg. For the full year, retail sales fell 6.2 percent without adjusting for seasonal variations.