February 26

Data breach hits Target’s profits, but that’s only the tip of the iceberg

Even after the immediate fallout from the breach subsides, the company could face costs that eat into its profits for years, according to industry observers.

By Amrita Jayakumar
The Washington Post

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Target said Wednesday that its profit in the fourth quarter fell 46 percent on a revenue decline of 5.3 percent in the wake of a data breach.

2013 Associated Press File Photo

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.

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