Target Warns Of Soft Sales As Data Breach Costs Reach $236M
Target announced Tuesday that it expects December’s massive data breach to cost the company $148 million in its second quarter, and Target also lowered its quarterly earnings guidance.
The Minneapolis-based retailer said insurance will cover $38 million of the recent expenses, which includes claims made by credit card companies.
Target added that the cost of the breach is an estimation based on available information, historical precedents, and an assessment of the validity of certain claims. In other words, although Target says it’s unlikely, it is possible the second-quarter expenses may be higher than $148 million. Furthermore, the estimate also doesn’t include any future breach-related legal, consulting, or administrative fees.
While Target’s data breach constitutes a public relations disaster, the company’s problems run much deeper—as Twin Cities Business reported in May.
Forbes echoed that sentiment Tuesday, reporting that the additional cost of the breach pales in comparison to soft sales and earnings. The financial magazine said the $148 million is just 0.2 percent of Target’s 2013 revenue, “the financial equivalent of a parking ticket.” But, like TCB, Forbes called out Target’s softer sales, shopper perception, and increased competition.
Target also lowered its earnings forecast for the second quarter from a range of $0.85 to $1 per share to around $0.78. The company blamed the decrease on lower-than-expected sales and costs related to cutting prices in order to “clear excess inventory” in its Canada stores and flat same-store sales in the United States.
Shares of Target’s stock were trading down about 3.5 percent at $58.55 per share late Tuesday morning.
Target’s news follows the company’s announcement that Brian Cornell, a senior executive at Pepsi, will take over as chairman and CEO on August 12—a choice that was met with mixed reviews from analysts.
In other news, Target unveiled a second tech hub in California this week, according to the Star Tribune. With its “Technology Innovation Center” open in San Francisco since 2012, Target has now added an office in Silicon Valley that the Minneapolis newspaper said is geared toward data analytics and engineering for its online and mobile teams.