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.
Target's new year is off to a rocky start.
- Community News Network
Most deadly fraternity scraps initiation for new members
Sigma Alpha Epsilon, one of the largest U.S. fraternities and the deadliest, said Friday it will ban the initiation of recruits, citing the toll that hazing has taken on its newest members.
VIDEO: Kentucky AG holds back tears, announces he won't defend marriage ban
In a tearful statement that went viral this week, Kentucky Attorney General Jack Conway announced that he would not defend his state's ban on gay marriage in court. Conway made the announcement after a federal judge ruled that Kentucky must recognize same sex marriages performed in other states. However, Gov. Steve Beshear said he will hire private attorneys to appeal the judge's order.
Avenger an American value
If you’re someone who appreciates the golden age of domestic sedans — those big, comfortable, heavy-feeling cars with a uniquely American sense of style — this one ought to pique your interest.
VIDEO: Will the NFL move the extra point to 42 yards?
The NFL's Competition Committee is reportedly in preliminary talks about spotting the ball at the 25-yard-line for point-after-touchdown attempts, which would make PATs 42 yards, according to NFL.com.
Road condition update
Crews are making progress on clearing state highways now that sunshine has traded places with snow and sleet, according to District 9 of the Kentucky Department of Highways.
NFL is right to ban N-word, other slurs, from the playing field
NFL players must adhere to all types of rules regarding on-field safety. It's time for them to work under one addressing the use of inappropriate language in the workplace.
VIDEO: Bird smashes through airplane's windshield
A cockpit video camera captured the moment when a bird smashed through the windshield of a small plane.
In minimum wage debate, Wal-Mart poised for a Ford moment
One hundred years later, U.S. companies including Gap and Wal-Mart Stores are caught up in the debate over raising pay - this time an increase in the federal minimum wage. President Barack Obama and Senate Democrats want to raise it to $10.10 an hour from $7.25, saying doing so will bolster the economy and reduce income inequality.
Missouri committee recommends $8 for tin foil hats
According to a summary sheet, the tin foil hat money is part of an amendment removing language prohibiting the state from accepting federal money to implement Common Core education standards.
VIDEO: Recall issued on Hot Pockets
Nestle has issued a recall of two varieties of Philly Steak and Cheese Hot Pockets because they may contain meat that's been recalled by the U.S. Department of Agriculture.
- More Community News Network Headlines
- Most deadly fraternity scraps initiation for new members