Retail treasurers returning to offense with share repurchases and dividends are proceeding with caution.
A growing number of retailers in the NeuGroup Network are spending or preparing to spend some of the excess cash they raised at the beginning of the pandemic on share repurchases and dividends.
- But most treasurers at these retailers remain cautious and conservative as they return to playing offense—not surprising given that these companies were among the worst impacted by lockdowns and social distancing.
Declare victory? “One interesting conversation we’ve been grappling with is ‘Is it too early to claim victory?’” one member of NeuGroup for Retail Treasury said at a recent meeting. His company is carrying 2.5 times its normal cash cushion in case of what he called “a shock-type scenario.” Among the questions he’s asking:
- “Should we be repaying all those credit facilities we put in place at the onset for insurance?
- “Should we do a big share repurchase and utilize all of our excess cash today and get back to a more normalized amount?
- “Or do we want to wait another quarter to see if the virus doesn’t come back and stores don’t close again?”
Middle Ground. One treasurer said his forecast model assumes a middle ground between expecting a return to normal and anticipating “another Covid scenario.”
- Another member said a cause for concern is that it is “a little tricky” to define the degree of downside that exists at this moment. “Is it just 10%, or could it be another full Covid resurgence?” she asked.
Dividend dynamics. Most of the members whose companies are paying dividends—some halted them and have restarted—said that, although they have additional cash on hand, they have no plans to increase the dividend yet, although some expect to do it this year (see chart).
- One member said there is “only so much you want to do with dividends,” when a company has a temporary cash surplus, since investors view dividend increases as permanent. He said that he leans toward a one-time share repurchase.
- Other treasurers gearing up for buybacks are looking into the opportunistic possibilities offered by ASRs. But they stressed the need for caution because of the optics and politics of buybacks as millions of Americans continue to struggle financially because of Covid.