Feb. 26--Target Corp.'s profit fell nearly in half during the last three months of its year as it absorbed the twin blows of a data breach that caused some shoppers to turn away from its stores and losses tied to its rapid expansion in Canada.
Even so, the outcome was slightly better than investors expected. However, Target said it wasn't able to provide a longer-term estimate of breach-related costs as investment analysts hoped.
In the company's first attempt to put a number on the damage from the attack, which occurred during the busy holiday shopping season, Target said the initial cost was $61 million and that insurance covered $44 million of it.
"At this time, the company is not able to estimate future expenses related to the data breach," Target's announcement said.
The fallout is hardly the only challenge facing the Minneapolis-based retail giant, which has been struggling with tentative shoppers, a disappointing initial performance in Canada and an ongoing game of catch-up in online shopping.
The company posted profits of $520 million, or 81 cents per share, for the quarter ended Feb. 1. That beat the consensus Wall Street estimate of 79 cents a share. But it was down 46 percent from $961 million, or $1.47 a share, in the same period a year ago.
Overall sales of $21.5 billion were down 3.8 percent from a year earlier, with same store sales down 2.5 percent, in line with guidance that company executives gave in early January after the news of the cyberattack affected store traffic near the end of the holiday shopping period.
"Results softened meaningfully following our December announcement of a data breach," Gregg Steinhafel, Target's chairman and chief executive, said in a statement. "As we plan for the new fiscal year, we will work tirelessly to win back the confidence of our guests ... and we are encouraged that sales trends have improved in recent weeks."
For the year, Target earned $1.97 billion, or $3.07 per share, down 34 percent from 2012.
While the data breach generated bigger headlines, the losses at the more than 100 stores it opened in Canada last year had a bigger effect on its bottom line. Target said its fourth-quarter profit was reduced by 40 cents a share because of the Canadian stores. The data breach reduced profits by about 20 cents a share.
For the February-to-April period that is the start of a new fiscal year, Target said it expects a profit of 60 to 75 cents a share, not including breach-related costs.
The numbers were released before markets opened Wednesday. Target shares have tumbled about 12 percent since news of the data theft broke in mid December.
The total cost of the breach to Target may not be known for years given litigation, and could reach into the hundreds of millions of dollars. In its statement Wednesday, Target said it could face a wide variety of breach-related costs that could affect its results this year and "future periods."
How exactly thieves were able to break into Target's computer networks still isn't clear. The theft is the focus of several investigations. Early indications are that thieves accessed Target internal network in late November by stealing the login credentials of a heating and refrigeration vendor in Pennsylvania that had a data connection with Target, after ending phishing e-mails to the vendor's employees.
Once inside the company's network, they managed to attach malware to the point of sale systems in Target's U.S. stores and begin sweeping up credit and debit card information from the magnetic stripes on cards. They had access for more than two weeks until federal officials discovered them and notified Target, which shut their access on Dec. 15.
Ultimately they made off with two sets of data: the payment card information of about 40 million people, including about 6.5 million Target Redcards; and personal information such as e-mails and addresses of about 70 million people.
Target says it doesn't know how much overlap there is between the two groups or how much of the personal information is repetitive or out of date.
Banks and credit unions across the country estimate they have spent more than $200 million as of February reissuing credit and debit cards for customers, costs they clearly intend to try to recoup from Target.
Much depends on the outcome of the investigations into the attack. Among the key questions is whether Target failed to comply with payments industry standards for handling cardholder data.
Meanwhile, Target faces the challenge of winning back customers scared off by the attack. About 5 percent of Minnesotans polled by the Star Tribune said they'll stop shopping at Target because of the breach, with 11 percent saying they will shop there less frequently.
(c)2014 the Star Tribune (Minneapolis)
Visit the Star Tribune (Minneapolis) at www.startribune.com
Distributed by MCT Information Services
Original headline: Target's 4Q profit falls 46% after breach, Canada expansion
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