Target (TGT) shares edged lower Thursday after the retailer boosted its quarterly dividend just days after warning that excess inventories and higher input prices would pressure near-term profit margins.
Target said it would pay a quarterly dividend of $1.08 per share, a 20% increase from its previous payout, to shareholders of record on August 17. The payment will be made on September 10, Target said.
Earlier this week, Target cautioned that its bigger-than-expected 35% build-up in overall inventories would likely trigger price cuts, adding Tuesday that deeper discounts would be needed to shift the excess goods, adding that operating margins would narrow to around 2% over the current quarter before rebounding into the second half of the year.
Target stock, in fact, fell the most in more than three decades last month after it cautioned on freight and fuel costs and their impact on near-term margins, noting the combined increase would amount to around $1 billion.
CEO Brian Cornell said that while the retailer's efforts to arrest inflation increases and find efficiencies in its ordering and transport systems would "result in additional costs in the second quarter", he was confident that this "rapid response will pay off for our business and our shareholders over time, resulting in improved profitability in the second half of the year and beyond."
Target shares were marked 0.15% lower in early afternoon trading following the dividend boost to change hands at $156.47 each, a move that would leave the stock with a year-to-date decline of around 32.5%.
The S&P 500 Retailing Group is down around 24% so far this quarter, its worst performance since 1990, as investors expect more pain to come from both the Federal Reserve's rate-based inflation fight and the highest nominal domestic gas prices on record, which continue to pinch household budgets and discretionary spending.
Citigroup analyst Paul Lejuez noted that average U.S. retail inventories are outpacing sales gains by around 10 percentage points, the widest gap since the pandemic, as retailers struggle to manage both supply chain disruptions, fuel and freight costs, and rapidly shifting consumer habits.
That effect was no more evident than in the surprisingly solid first quarter results from Macy's (M) and Nordstrom (JWN), both of which saw significant shifts in demand from casual to more formal attire for the spring and summer seasons.
Larger, more diverse retailers, however, might be stuck with bulging levels of unwanted merchandise as a result of their eagerness to get in front of supply chain snarls, and that could mean deeper price discounts for inflation-strapped customers.
