NEW YORK Looks like 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 nation’s second largest discounter said Wednesday that its profit in the fourth quarter fell 46 percent on a revenue decline of 5.3 percent as the breach scared off customers worried about the security of their private data.
While Target said sales have been recovering since the breach was disclosed in mid-December, the company expects business to be muted for some time: It issued a profit outlook for the current quarter and full year that was below Wall Street estimates.
The results come more than two months after Target disclosed that personal credit card data from millions of Target customers was stolen by hackers who targeted credit card terminals in its stores.
During a conference call with investors on Wednesday, Target CEO Gregg Steinhafel said the retailer has been updating shoppers early and often on the facts of its ongoing investigation, offering free credit card monitoring to any customer shopping at a Target store and working on equipping its locations with more secure technology.
“We are committed to making things right,” he said.
Target’s business has been affected by the breach in a number of ways. During the quarter, the number of transactions fell 5.5 percent, in part because of shoppers leery of buying at Target following the breach.
The company also has faced costs related to the breach. Target said it can’t yet estimate how much the data breach will cost it in total.
In the fourth quarter, the company said the breach resulted in $17 million of net expenses, with $61 million of total expenses partially offset by the recognition of a $44 million insurance receivable.
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.
Target, which is based in Minneapolis, earned $520 million, or 81 cents per share, for the three months that ended on 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.
In addition to the breach, Target’s results were hurt by stumbles in its expansion into Canada, its first foray outside the United States.
Analysts had expected a profit of 80 cents on revenue of 21.5 billion, according to FactSet estimates.
Investors sent shares of Target up more than 7 percent, or $4.14 to $60.65 in trading on Wednesday as the earnings beat Wall Street estimates by a penny and met analysts’ sales estimates. The increase comes as Target’s stock had fallen 11 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.
Target disclosed on Dec. 19 that a data breach compromised 40 million credit and debit card accounts between Nov. 27 and Dec. 15. Then on Jan. 10 it said hackers also stole personal information – including names, phone numbers as well as email and mailing addresses – from as many as 70 million customers.
When the final tally is in, Target’s breach may eclipse the biggest known data breach at a retailer, one disclosed in 2007 at the parent company of TJ Maxx that affected 90 million records.
Target says it’s taking steps to shore up its business. Company executives told investors on the call that it wants to make the store “irresistible” to shoppers with trendy merchandise and discounts.
Target also is trying to fix merchandising problems and Canadians’ perception that prices are too high.
And the company is accelerating its $100 million plan to implement chip-based credit card technology, which experts say is more secure than using traditional magnetic stripe cards by early 2015 in all 1,800 stores.
The company said it expects earnings per share for the current quarter to range from 60 cents to 75 cents. Analysts had previously expected 88 cents. Target also expects revenue at stores opened at least a year to be flat to down 2 percent.
For the full year, Target expects earnings per share to range between $3.85 and $4.15. Analysts had expected $4.21.
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