For retailers, it may be time to ramp up the buybacks

Retailers rely on a combination of dividend payments and share repurchase programs to return cash to stockholders, but the latter method is coming under scrutiny as Democrats look to leverage the populist theme of income inequality during the 2016 presidential campaign.

Many retailers have aggressive share repurchase programs in place and their impact soon will be evident. This month, major retailers begin reporting second quarter financial results and where the impact of share buybacks shows up is in the differing growth rates between net income and earnings per share. Because share buybacks reduce the number of outstanding shares, the volume of shares repurchased during a reporting period allows companies to impact, some might say manipulate, their earnings per share calculations by spreading net income over a reduced number of shares.

Share buybacks can distort the growth rate of a company’s underlying profits, but this impact is easily understood by investors, some of whom may prefer buybacks as a use of cash over dividends for tax reasons. Nevertheless, buybacks are coming under scrutiny for a host of perceived ills by Democratic leaders who predictably are proposing solutions that involve increased regulations that would impose new reporting requirements on company’s who buy their own shares.

For more insight into this situation and what retailers can expect, check out what the New York Times’ assessment by clicking here.