Cumberland Times-News

Community News Network

February 26, 2014

Data breach hits Target's profits, but that's only the tip of the iceberg

— Target's new year is off to a rocky start.

In its first financial release since the December breach that enabled the theft of millions of customers' payment data, Target said profits fell 46 percent and that the breach had already cost the retailer $17 million. The final tally will be bigger, the company said, but it's unclear by how much.

The results don't surprise retail analysts, but they signal the onset of a rough year for one of the nation's biggest retailers while the industry is already facing setbacks. The extreme winter weather, weak holiday sales, sluggish labor market and low consumer confidence have hit most retailers' profits.

Target had the added burden of dealing with the breach in the midst of the critical holiday season. Sales nose-dived once news of the attack broke a week before Christmas. Target tried to pacify customers and salvage its sales by offering customers an extra 10 percent discount. But that wasn't enough, and the company lowered its earnings estimate in a January update to investors, citing the breach announcement.

Target said it couldn't provide an estimate of how much the breach would cost because of an ongoing government investigation.

"Regardless of the ultimate dollar amounts, we have the financial strength to move beyond these near-term impacts," John Mulligan, Target's chief financial officer, said in a call with investors Wednesday.

While the quarterly decline looks like a blip next to the big-box retailer's $73 billion annual sales, analysts say Target has a long way to go before it's out of the woods. Even after the immediate fallout from a data breach subsides, companies face costs that eat into their profits for years, according to industry observers. When the scale of the attack is as large as the Target one - up to 110 million customers' records were stolen - the price tag is higher.

More important, companies have to rebuild shoppers' faith in their brands, which is never an easy task.

On a recent snowy afternoon in the Target at Prince George's Plaza in Hyattsville, Md., it was business as usual. A lunchtime crowd milled around the store, and many customers used cards to pay for purchases. But shoppers weren't immune to the effects of the breach.

Mayelin and Jatnna Jimenez, both victims of the payment card theft, said they had changed the way they shopped at Target. Mayelin said she hadn't bought anything at the store since the holidays, while her sister said she used cash to pay for her purchase that afternoon. Both had been issued new cards by their banks, they said.

"We love Target, but we are disappointed," Mayelin Jimenez said.

Freda Miller was more optimistic. Miller said she was also affected by the data breach and was concerned about the security of payment systems. But she continued using her card to shop at the store, she said.

"I trust Target will stand by its customers," she said.

The hacking attacks on Target, Neiman Marcus and other retailers have triggered debates in Washington about data security practices, the country's outdated payment technology system and breach notification laws.

For Target, they have also unleashed a litany of costs that include legal fees, software updates, customer reimbursement and damage control. An exact figure is tricky to pin down, security experts say, but it won't be small. So far, the company has had to pay out $61 million in relation to the breach, of which it expects $44 million to be covered by insurance.

"They can't get out of this for less than $100 million," said John Kindervag, vice president and principal analyst at Forrester Research.

If an ongoing government investigation finds Target at fault for not complying with industry-specific security standards, the company faces fines in the range of $400 million to $1.1 billion, according to an estimate by Jefferies, an equity research company. That figure did not include lost sales or customer goodwill, the firm said. Banks foot the bill for reissuing customers new cards, but Target could end up paying part of that share depending on its agreement with financial institutions, experts say.

To understand how much the retailer stands to lose, analysts point to the 2007 attack that hit TJX, the parent company of T.J. Maxx and Marshall's. Hackers stole the payment data of more than 45 million customers by exploiting an unsecured wireless network. TJX's initial estimates put the damage at about $25 million, but once the dust settled, the company ended up paying more than $250 million. That probably means Target's troubles are just beginning.

 "I doubt that we'll ever really know the full costs," said Kindervag.

Target reported net earnings of $520 million in the fourth quarter, down 46 percent from a year ago. For the full year, revenue was down more than 34 percent, while sales fell 6.6 percent during the fourth quarter. The company's share price was up more than 7 percent in morning trading Wednesday.

 

1
Text Only
Community News Network
  • Why a see-through mouse is a big deal for scientists

    A group of Caltech researchers announced in Cell Thursday their success in making an entire organism transparent. Unfortunately, this isn't any kind of "Invisible Man" scenario: The organism in question is a mouse, and the mouse in question is quite dead.

    July 31, 2014

  • Screen Shot 2014-07-31 at 2.12.55 PM.png VIDEO: Five-year-old doesn't want her brother to grow up

    Sadie, an adorable 5-year-old from Phoenix, wants her brother to stay young forever, so much so that her emotional reaction to the thought of him getting older has drawn more than 10 million views on YouTube.

    July 31, 2014 1 Photo

  • lockport-police.jpg Police department turns to Facebook for guidance on use of 'negro'

    What seems to be a data entry mistake by a small town police department in western New York has turned into a social media firestorm centered around the word "negro" and whether it's acceptable to use in modern society.

    July 31, 2014 3 Photos

  • The virtues of lying

    Two computational scientists set out recently to simulate the effects of lying in a virtual human population. Their results, published in the Proceedings of the Royal Society B, show that lying is essential for the growth of a cohesive social network.

    July 31, 2014

  • Sunburn isn't the only sign of summer that can leave you itchy and blistered

    You've got a rash. You quickly rule out the usual suspects: You haven't been gardening or hiking or even picnicking, so it's probably not a plant irritant such as poison ivy or wild parsnip; likewise, it's probably not chiggers or ticks carrying Lyme disease; and you haven't been swimming in a pond, which can harbor the parasite that causes swimmer's itch.

    July 30, 2014

  • Survey results in legislation to battle sexual assault on campus

    Missouri U.S. Sen. Claire McCaskill joined a bipartisan group of senators Wednesday to announce legislation that aims to reduce the number of sexual assaults on college campuses.

    July 30, 2014

  • An alarming threat to airlines that no one's talking about

    It's been an abysmal year for the flying public. Planes have crashed in bad weather, disappeared over the Indian Ocean and tragically crossed paths with anti-aircraft missiles over Ukraine.

    July 30, 2014

  • Sharknado.jpg Sharknado 2 set to attack viewers tonight

    In the face of another "Sharknado" TV movie (the even-more-inane "Sharknado 2: The Second One," premiering Wednesday night on Syfy), there isn't much for a critic to say except to echo what the characters themselves so frequently scream when confronted by a great white shark spinning toward them in a funnel cloud:
    "LOOK OUT!!"

    July 30, 2014 1 Photo

  • 20140729-AMX-GIVHAN292.jpg Spanx stretches into new territory with jeans, but promised magic is elusive

    The Spanx empire of stomach-flattening, thigh-slimming, jiggle-reducing foundation garments has expanded to include what the brand promises is the mother of all body-shaping miracles: Spanx jeans.

    July 29, 2014 1 Photo

  • Medical marijuana opponents' most powerful argument is at odds with a mountain of research

    Opponents of marijuana legalization are rapidly losing the battle for hearts and minds. Simply put, the public understands that however you measure the consequences of marijuana use, the drug is significantly less harmful to users and society than tobacco or alcohol.

    July 29, 2014

Latest news
Facebook
Must Read
House Ads