Target Corp. raised its quarterly dividend by 5 cents to 30 cents, a 20 percent increase, as it sought to placate investors after a 22 percent decline in its stock price this year.
The dividend is payable Sep. 1 to shareholders of record Aug. 18.
The retailer's announcement comes ahead of its annual shareholders meeting Wednesday. Investors are expected to grill management on why the company is having trouble getting shoppers, who are buying food and other staples, to cross the aisle to clothing and other discretionary items.
"Target's primary focus has been expanding its super centers and food business and trying to increase traffic," said Ken Perkins, president of research firm RetailMetrics LLC. "But they have taken their eye off the ball in apparel and home goods. The merchandise doesn't seem to be as fresh."
Investors have punished Target's shares, now trading at about $47, the low end of their 52-week range of $46.53 and $60.97. The Dow Jones U.S. Retail Index has soared 18 percent from a year ago and 12 percent since the beginning of the year.
A year ago, Target was reaping the benefits from moves it made to cater to shoppers focused on necessities like paper towels and milk. During the depths of the Great Recession in 2009, Target had started expanding food sections and advertising low prices, a departure from the "cheap chic" image it had long cultivated that set it apart from competitors.
Target also hoped to get a boost from a 5 percent discount for its debit card and credit card holders, started last October.
Target promised investors that revenue at stores opened at least a year would accelerate this year to increase between 4 percent and 5 percent. Last year, the increase was just 2.1 percent.
But an uneven economic recovery and some merchandising missteps by Target have resulted in a disappointing start to the year.
Higher-income shoppers, feeling better about their fortunes, are returning to department stores like Macy's. Low-income shoppers are under more financial duress because of higher gas and food prices. They're being drawn more to dollar stores, which have added more name-brand food and are more conveniently located.
But Target isn't just a victim of circumstances, analysts say. They say its newfound emphasis on necessities may have gone too far, turning off shoppers who had been going there for small luxuries like dresses or home accessories. In addition, competitors like J.C. Penney Co. and Kohl's Corp. have added more exclusive, affordable lines from fashion designers. That could be stealing middle-income customers from Target. In home furnishings, Bed, Bath & Beyond is becoming an increasing threat.
Groceries also typically have lower profit margins than other merchandise in Target stores.
For the latest quarter, which ended April 30, Target posted a modest 2 percent increase in revenue at stores open at least a year, and the company's 2.8 percent increase in the measure for May was below the 3.5 percent forecast from analysts surveyed by Thomson Reuters.
The 5 percent cardholder discount has helped get Target's highest-income shoppers to spend more, analysts say, but that's only a marginal benefit when the rest of its customers are sticking to basics.
Customer traffic slowed in the second half of May, Target executives said last week, and higher gas prices and other inflation crimped spending more than they expected. That increases pressure on Target in the second half of the year to reach the annual revenue goal.
The shareholders' meeting is being held in new store in Pittsburgh, set to open next month. Target's stock fell 28 cents to $46.78 in afternoon trading Wednesday.
Target, based in Minneapolis, operates 1,752 Target stores in 49 states.
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