Target earnings hit hard by massive data breach

Feb. 26--Target said its profits plunged 46 percent during the holiday quarter, as the discount giant reels from one of the largest data breaches in U.S. history.

As Target warned last month, its earnings and sales were both hit hard by the data breach. But on Wednesday, Wall Street expressed relief that no further bad news was emerging, helping to push Target's stock up 7 percent in late-morning trading.

Even so, there was enough pain that Target CEO Gregg Steinhafel told analysts that 2013 would be remembered as "a disappointing year financially" for the discount chain.

The Minneapolis-based retailer Wednesday reported fourth-quarter net earnings of $520 million, a steep drop from the previous year, when holiday quarterly profits neared the $1 billion mark.

Same-store sales fell 2.5 percent during the fourth quarter, the busiest and most important of the year. The number of transactions fell 5.5 percent in the quarter.

Target said the dropoff in sales occurred after Dec. 19, when the company confirmed that thieves had broken into its computer databases.

"We were very pleased with our holiday season results prior to the data breach," Steinhafel said ruefully. But the breach caused customers to shy away from its stores, and officials suggested that traffic has yet to return to normal.

The company warned that it could not yet estimate the full costs of the data breach, involving the theft of data from up to 40 million credit and debit cards, along with personal information on up to 70 million Target shoppers.

But those costs already are substantial: Target said it has already spent $61 million to cope with the breach. Most of that initial cost was covered by insurance, but many other potential costs are looming.

Target also is battling troubles in its 124 newly opened Canadian stores, which are performing far more weakly than the company first expected.

Sales in those Canadian stores totaled $623 million in the quarter, but that number was dwarfed by expenses, leading to an adjusted loss of $329 million.

As bleak as the numbers were, Target officials noted that they're largely in line with their earnings warning issued last month.

The company reported adjusted earnings per share of $1.30, which it noted was "at the high end of the updated guidance provided in January."

Target's struggles have already led to two rounds of layoffs at its corporate offices in Minneapolis, the most recent coming in January.

On its call with analysts, Target officials also discussed several new initiatives. The company said its small cluster of City Target urban stores are performing well, and the company will now look at reducing the size of those stores further, which would allow them to enter more markets.

Officials also cited the success of Cartwheel, Target's mobile app that allows shoppers to access discounts and deals on their smartphone. More than 5 million Target shoppers have already signed up for Cartwheel, and it's especially popular with younger shoppers, officials said.

Many analysts have speculated that Target would be forced to curtail its plans to buy back company stock, as it faces unexpected expenses from both the data breach and its Canadian expansion.

Target CFO John Mulligan offered a middle path Wednesday, telling analysts that Target does expect to buy back between $1 billion and $2 billion of its shares this year -- but none in the first part of the year, and then only as it got a better handle on the breach costs.

Still, the lack of any more shoes dropping buoyed Wall Street, where in late-morning trading, Target shares were up $4.15, or 7 percent, to $60.66.

Tom Webb can be reached at 651-228-5428. Follow him at twitter.com/TomWebbMN.

___

(c)2014 the Pioneer Press (St. Paul, Minn.)

Visit the Pioneer Press (St. Paul, Minn.) at www.twincities.com

Distributed by MCT Information Services