Breach cut into Target sales
- Article by: EVAN RAMSTAD and THOMAS LEE
- Star Tribune staff writers
- January 10, 2014 - 9:09 PM
The data breach that Target Corp. discovered at the height of the holiday shopping rush has taken a noticeable toll on the bottom line.
The Minneapolis-based retailer said Friday that sales turned “meaningfully weaker” after the incident was revealed in mid-December. It lowered its outlook for fourth-quarter comparable-store revenue to a drop of 2.5 percent, after previously saying it expected no change.
Amy Koo, an analyst with Kantar Retail, said Target had already been struggling to boost traffic to its stores and grow same-store sales. Now the breach will divert precious time and attention away from improving the company’s U.S. business.
“They were already on shaky ground,” Koo said. “Now the data theft really shakes this up.”
The company’s statement came at the end of a week of bad news from U.S. retailers, with many saying that holiday sales fell below expectations. Specialty stores such as Bed, Bath & Beyond, American Eagle Outfitters and Pier 1 Imports all told investors to expect lower-than-expected results, and Sears Holding Corp. late Thursday said it expected to report a net loss for the latest period.
Target said the company’s sales were doing better than they expected before the data breach was revealed on Dec. 19. But the company said it now expects its fourth-quarter profit to be in a range of $1.20 to $1.30 a share, down from its previous expectation of $1.50 to $1.60 a share.
The company also said it expects further charges against earnings for costs related to the breach but it could not now estimate their size.
“There is a lot of bad news they are dealing with,” said David Strasser, a stock analyst at Janney Montgomery Scott.
However, he said that from a purely financial standpoint, for a shareholder looking at potential liability costs, “the incremental numbers on the breach are not all that dramatic.”
Target shares fell 72 cents Friday to $62.62.
Brian Yarbrough, a retail analyst with Edward Jones Investments in St. Louis, said the fallout from the information theft creates even more pressure for Target to hit the numbers promised to Wall Street. Either the company somehow manages to quickly boost U.S. comparable-store sales back to the 2 to 3 percent range, or the retailer will need to start cutting costs more aggressively.
The company said Friday that it plans to close eight stores in May, the largest group of store closings at one time in recent memory.
Though Target says the decision to close stores is based on each store’s individual performance, Yarbrough believes Target’s poor performance of late combined with the data breach forced it to take a harder line on which stores will make the cut.
In addition to the potential costs of the data breach, Target said its fourth quarter performance would be weakened by expenses related to closing the eight stores, some real estate costs and some costs related to its massive expansion in Canada this year, where it opened more than 100 stores.
Target is closing two stores in Nevada, two in Ohio, and one each in Florida, Georgia, Illinois and Tennessee.
“In light of the recent data breach, our top priority is taking care of our guests and helping them feel confident in shopping at Target,” John Mulligan, Target’s chief financial officer, said in a statement. “At the same time, we remain keenly focused on driving profitable top-line growth and investing our resources to deliver superior financial results over time.”
Staff writer Mike Hughlett contributed to this report.
Evan Ramstad • 612-673-4241
Thomas Lee • 612-673-4113
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