Minneapolis—It was bad enough when Target Corp. had to reveal in December that a data breach compromised some 40 million credit/debt card accounts, resulting in stolen personal information for as many as 70 million customers.
How much that security breach cost the mass merchant was evident today in its fourth quarter earnings report showing a 46% drop in profit.
For the quarter ended Feb. 1., Target reported earnings of $520 million, or 81 cents a share, compared with a profit of $961 million, or $1.47 a share, in the year-ago quarter.
Net revenue fell 3.8% to $21.52 billion from $22.7 billion a year ago. Analysts’ average estimate expected Target to report a profit of 80 cents a share on sales of $21.5 billion.
Comparable store sales decreased 2.5% “driven by positive sales prior to our to our December 19 announcement of a data breach, followed by meaningfully softer results following the announcement.”
Breach Costs Could Exceed $1 Billion
News of the security breach resulted in fewer transactions, a 5.5% drop, the largest quarterly decline since Target began reporting that statistic in 2008.
Not only does Target face everyday retail challenges, it also faces reassuring and regaining trust from millions of its customers.
“For more than 50 years Target has succeeded by focusing on our guests,” said Gregg Steinhafel, Target’s chairman, president/ceo. “During the first half of the fourth quarter, our guest-focused holiday merchandising and marketing plans drove better-than-expected sales. However, results softened meaningfully following our December announcement of a data breach. As we plan for the new fiscal year, we will continue to work tirelessly to win back the confidence of our guests and deliver irresistible merchandise and offers, and we are encouraged that sales trends have improved in recent weeks.”
According to Target the data breach resulted in some $17 million of net expenses during fourth quarter with $61 million of total expenses partially offset by the recognition of a $44 million insurance receivable. Nonetheless, Target still could face lawsuits as well as fines and repayments to banks that suffered credit card losses. One estimate put the total cost at $1 billion.
To top it off, Target may have stumbled in its initial expansion into Canada. Since opening up 124 stores at locations once owned by Zellers, a Canadian retailer, Target has had to readjust prices and strategies to accommodate the new market. Target reportedly lost $941 million there so far.
For its full year 2013 results, Target reported sales decreased 0.9% to $71.3 billion, “reflecting the impact of an additional accounting week in 2012 and a 0.4% decrease in comparable sales, partially offset by the contribution from new stores.” 2013 earnings were down 11.3% to $4,959 million compared with $5,589 million in 2012.
Looking ahead to its first quarter this year, Target forecast earnings of 60 to 75 cents (excluding expenses related to the data breach). Analysts expect 85 cents a share.
For 2014 full year, Target estimated earnings of $3.85 to $4.15 a share compared with the analysts’ forecast of $4.15 a share.