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Hackers

Data-Breach Costs Take Toll on Target Profit

Data-Breach Costs Take Toll on Target Profit
February 27, 2014 7:03AM

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It was a tough holiday season for many retailers, but none was harder hit than Target, which dealt with not only sluggish sales, but the fallout from a data breach that scared off customers. The massive data breach compromised 40 million credit and debit card accounts between Nov. 27 and Dec. 15; Target is offering free credit monitoring services.

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Target Corp. will be feeling the financial pain for a while from the theft of credit card numbers and other information from millions of its customers.

The retailer said Wednesday that its fourth-quarter profit slumped 46 percent. It also reported that revenue slipped 5.3 percent as the breach scared off customers.

During the holiday shopping season, personal data from millions of Target customers was stolen by hackers who targeted credit card terminals in its stores. The incident has scared shoppers away, and the company says its profits will be affected well into 2014.

"As we plan for the new fiscal year, we will continue to work tirelessly to win back the confidence of our guests. ... We are encouraged that sales trends have improved in recent weeks," said Gregg Steinhafel, chairman, president and CEO of Target.

The data breach comes on top of other woes, including sluggish sales in the U.S. and a disappointing foray into Canada.

The retailer, based in Minneapolis, said it earned $520 million, or 81 cents per share, for the three months that ended Feb. 1. That compares with a profit of $961 million, or $1.47 per share, a year earlier.

Revenue fell to $21.5 billion from $22.7 billion. Revenue at stores open at least a year, an important retail measurement, fell 2.5 percent.

Analysts had expected a profit of 80 cents on revenue of 21.5 billion, according to FactSet estimates.

The breach resulted in $17 million of net expenses in the fourth quarter, Target said, with $61 million of total expenses partially offset by the recognition of a $44 million insurance receivable. The company said it can't yet estimate how much more the data breach will cost.

Target said expenses may include payments to card networks to cover losses and expenses for reissuing cards, lawsuits, government investigations and enforcement proceedings.

The costs could hurt the company's first-quarter and full-year earnings, it said.

But investors sent shares of Target up nearly 4 percent, or $2.19 to $58.70 in premarket trading Wednesday as the earnings beat Wall Street estimates by a penny. Investors also seemed soothed that sales were recovering. The stock has fallen about 10 percent since the company disclosed the breach in mid-December.

Still, Target has much work to do to bring back customers who are still scared to shop there.

The massive data breach compromised 40 million credit and debit card accounts between Nov. 27 and Dec. 15.

Target disclosed the breach Dec. 19 and then on Jan. 10 it said that hackers also stole personal information -- including names, phone numbers as well as email and mailing addresses -- from as many as 70 million customers. (continued...)

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